Dollar takes a breather from Fed-fueled gains

New York (Dec 20)  The dollar fell against most rivals Friday, taking a breather from its upward march visible since the Federal Reserve said it would slow its bond-buying stimulus.

The U.S. economy grew 4.1% in the third quarter, according to newly revised gross domestic product figures released Friday. The increase was previously reported as 3.6%.

The ICE dollar index   — which tracks the currency against six others — traded at 80.406 versus 80.632 late Thursday. The WSJ Dollar Index   was at 73.73 versus 73.93. 

Many investors have focused on the Fed’s message that interest rates would remain low even as it begins to cut back on stimulus, which the central bank took pains to emphasize in its latest statement. But IronFX Global head forex strategist Marshall Gittler said the fact that the Fed didn’t implement additional easing measures, like reducing the interest paid on reserves, could be good news for the greenback going forward.

“I would expect this rethink of Fed policy to support the dollar going forward, especially if the U.S. economic indicators continue to surprise on the upside,” he wrote in a note.

The dollar  traded at ¥104.03, less than late Thursday’s ¥104.19. The dollar earlier rose to an intraday high of ¥104.64, which marked a new five-year high. Earlier this week, the dollar broke the ¥104 level for the first time since October 2008, at the height of the global financial crisis.

The Bank of Japan on Friday kept both its policy and economic outlook broadly unchanged, as economists had expected.

CMC Markets senior market analyst Colin Cieszynski said that unlike its peers in other developed countries, the Bank of Japan was expected to ease policy further, particularly as the Japanese government prepares to hike the national sales tax in April, likely dragging on growth.

“In an environment where many of the big central banks are starting to look at ways to exit monetary stimulus, the Bank of Japan may increasingly be seen as being on its own path, making the yen potentially less attractive,” he wrote in a note to clients.

Meanwhile, the euro  rose to $1.3695 from $1.3657, and the British pound  gained to $1.6389 from $1.6372.