(Updates to U.S. afternoon)
The U.S. dollar pared losses against a basket of currencies on Wednesday, after the
U.S. Federal Reserve
held interest rates steady but stiffened its hawkish stance with a further rate increase projected by the end of the year.
As they did in June, Fed policymakers at the median still see the central bank's benchmark overnight interest rate peaking this year in the 5.50%-5.75% range, just a quarter of a percentage point above the current range.
But from there, the Fed's updated quarterly projections show rates falling only half a percentage point in 2024 compared to the full percentage point of cuts anticipated at the meeting in June.
"This wasn't a 'pause,' it was a 'skip,'" said Karl Schamotta, chief market strategist at Corpay in Toronto.
"With the economy performing better than expected and inflation pressures remaining persistent, Fed officials chose to maintain a hawkishly data-contingent bias in this afternoon's statement and dot plot," Schamotta said.
The U.S. dollar index =USD , which measures the currency against a basket of rivals, was 0.076% lower at 105.04, after having been as low as 104.66 earlier in the session.
The index rose for its ninth straight week last week, its longest winning streak in nearly a decade as resilient U.S. growth has fueled a rebound in the dollar.
Interest rate sensitive
two-year Treasury yields
hit 17-year highs on Wednesday after the Fed decision.
"It looks as though the Fed is trying to send as hawkish a signal as it possibly can," said Gennadiny Goldberg, interest rate strategist at TD Securities.
The pound GBP=D3 was volatile, last down 0.14% to $1.2375. It fell to a near 4-month earlier in the session following data showing UK inflation slowed more than expected in August.
British annual consumer price inflation (CPI) unexpectedly fell to 6.7% in August, official data showed on Wednesday, a day before the BoE is expected to raise rates again.
Economists polled by Reuters had forecast CPI would rise to 7.0% from July's 6.8%.
Dominic Bunning, Head of European FX Research at HSBC, said softness in core and services inflation in particular should give some comfort and limit the BoE to a 25 basis point hike on Thursday, marking the peak in the cycle.
"It is likely that the market will (then) slowly start to see the next move in UK rates being down, not up," Bunning said.
Money markets have started to price in an almost 60% chance the BoE will keep rates on hold on Thursday after 14 back-to-back increases stretching back to December 2021. On Tuesday, they were pricing only a 20% chance of a BoE pause.
Attention stayed fixed on the yen as U.S. and Japanese authorities heaped on fresh comments about the possibility of intervention.
The yen was
down 0.10%
versus the greenback at
148.00
per dollar after the Fed decision. JPY=EBS
Japan's top financial diplomat, Masato Kanda, reiterated warnings on Wednesday, saying Japanese authorities are always in close communication on currencies with U.S. and overseas policymakers while keeping a close watch on market moves with a "high sense of urgency."
Asked whether Washington would show understanding over another yen-buying intervention by Japan, U.S. Treasury Secretary Janet Yellen said overnight it "depends on the details" of the situation.
In cryptocurrencies, bitcoin BTC=BTSP was about flat on the day at $27,175, close to a near 3-week high touched in the previous session.
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