US Dollar rallies after sharp losses

Washington (Mar 19)  The dollar rebounded broadly on Thursday after posting steep losses the previous session following a much more cautious Federal Reserve statement on interest rates than expected, as investors remained bullish on the greenback.

The dollar suffered its biggest one-day fall against the euro and sterling in six years on Wednesday. Against the Swiss franc, it posted its worst daily performance since Jan. 15, when the Swiss National Bank removed a peg on the Swiss franc against the euro. Against the yen, the dollar had its weakest day since December.

In the statement the Fed issued after its policy meeting on Wednesday, the U.S. central bank removed reference to being "patient" on rate rises but downgraded its views on the economy and inflation and lowered its interest rate trajectory.

Read More › Fed removes 'patient' but says no April hike coming

Richard Franulovich, senior currency strategist at Westpac in New York, said the Fed's dovish statement was an excuse to sell lopsided positions on the dollar but he added that the greenback is still a good bet in the medium term.

"The Fed is less supportive of the dollar, but the dollar's bull trend is built on more than just the Fed," said Franulovich. "I still think parity with the euro is still achievable. It's difficult to see the euro gain any momentum with the ECB buying $3 billion in bonds every day and Greece is still unresolved."

In afternoon trading, the euro was down 1.8 percent at $1.0632 after having traded above $1.10 on Wednesday night, while the dollar index was up 0.8 percent at 99.29. The dollar was up 0.7 percent at 120.90 yen.

"The decline in the dollar on Wednesday seemed excessive, especially as the dollar saw large gaps against many liquid currencies such as sterling in the final minutes of trading," said Thierry Albert Wizman, global rates and currencies strategist at Macquarie Limited in New York.

"Some of these excessive moves reversed as liquidity came back to the FX market."

Switzerland's central bank also left rates unchanged on Thursday, driving the franc up 0.8 percent against the euro to 1.0554 francs. The dollar rose 1 percent versus the franc to 0.9921 franc.

Source: CNBC