United States dollar plummets on Fed statement

The Federal Reserve’s decision to leave interest rates unchanged as well as its dovish tone are signs that it is time for investors to dump the US dollar in favor of emerging-markets currencies, according to one of Citigroup’s top currency strategists.

The dollar plummeted nearly immediately after the policy statement and economic forecasts were released at 2 p.m. Eastern.

“If you are incorporating global economic and financial market developments into your calculus then it will be very hard for this Fed to get off of zero”, he said.

Longer-dated USA debt yields plunged, with the two-year notes yield dropping to 0.686 percent, returning to its familiar range only a day after it hit a 4 1/2-year high of 0.819 percent.

The middling performance across the board follows the fall of oil and copper prices overnight and the US Federal Reserve’s decision to defer an interest rate hike.

“There’s no smoking gun in there that says they’re definitely going to go this year”, said Lee Ferridge, head of macro strategy for North America at State Street Global Advisors. That marked the highest level for the shared currency since August . 26.

In late New York trading, the euro fell to 1.1278 dollars from $1.1315 in the previous session, and the British pound dropped to $1.5332 from $1.5432 in the previous session. The yen also edged up 120.12 to the dollar from Thursday’s low at 120.995.

“Perhaps in recognition of this, equity markets and the higher risk currencies [in particular the Australian and New Zealand dollars] have faded their initial enthusiasm”. The Antipodean currencies have proved remarkably resilient to volatility in commodity and Chinese stock markets, with the Aussie up 1.5 percent so far this week and the kiwi 0.7 percent higher.

The kiwi dollar rose to 88.83 Australian cents from 88.46 cents.

ANZ’s Tuck said the Fed’s lower projections for rate hikes and inflation will also feed into the thinking of other central banks, such as New Zealand’s Reserve Bank, which is in an easing cycle after falling milk prices eroded the nation’s terms of trade.