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 In a widely anticipated move, the Fed increased its benchmark
interest rates by a quarter of a percentage point on Wednesday.
Shares soared, the two-year Treasury yield hit its highest point in
five years, and the greenback rose around 1 percent against its
basket.
Though Fed Chair Janet Yellen said further U.S. monetary tightening
would be gradual and data-dependent, some market watchers sensed a
hawkish tone in the unanimous support Fed officials gave Yellen for
the hike, and the fact that their median projected target rate for
2016 remained at 1.375 percent.
The euro fell to as low as $1.0832, before recovering to $1.0863,
still down half a percent on the day. With investors feeling
comfortable taking on risk, low-yielding funding currencies such as
the single currency would be unlikely to see much demand, analysts
said.
Commerzbank currency strategist Thulan Nguyen, in Frankfurt, said
the main reason the dollar had gained was that many investors had
expected a more dovish Fed statement, but that the dollar's post-Fed
rally was already beginning to fade.
"I would be cautious in interpreting too much into (the hawkish tilt
to the statement), particularly as for exchange rates what was
relevant was that apart from lower oil prices, the appreciation of
the U.S. dollar was dampening inflation at the moment," she said.
"That implies that they do not expect a sharp appreciation of the
dollar. That confirms my view that we will not see a strong
appreciation of the dollar, because if we do see it, the Fed will
react to that by postponing rate hikes."
Traders in Europe were awaiting an interest rate decision from the
Norwegian central bank at 0900 GMT (4 a.m. ET), with a narrow
majority expecting a 25 basis point rate cut.
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The yen hit a one-week trough of 122.645 yen per dollar overnight as
Japan's Nikkei surged, before bouncing back to 122.33 yen, down just
0.1 percent on the day. Traders said they were not holding their
breath for a sharp deterioration in the Japanese currency.
"Any dollar/yen appreciation won't come at once, it will rise a step
at a time," said Koji Fukaya, president of FPG Securities in Tokyo.
"The next lift will likely come in the next quarter, when the second
hike comes up on the agenda."
Reflecting the dollar's broad gains after the Fed hike, the People's
Bank of China set its official yuan midpoint rate at a new
4-1/2-year low. The yuan was down half a percent in offshore trading
at 6.5520 yuan per dollar.
(This story was refiled to change the day in the lead to Thursday)
(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Mark
Heinrich)
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