Forex – Dollar Near 4-Month Lows after Dovish Fed; ECB, UK Election in Focus

0 – The dollar was hovering near four-month lows on Thursday, nursing its steepest losses in weeks after the Federal Reserve forecast that it would keep interest rates on hold through 2020.

Investors also remained cautious ahead of Sunday’s deadline for the next round of U.S. tariffs on Chinese imports to take effect, and ahead of a European Central Bank meeting and the UK election on Thursday.

The greenback hit its lowest in more than a month against the euro after the Fed meeting and was holding just above that level at 1.1126 by 04:24 AM ET (09:24 GMT).

Against a basket of currencies, the U.S. dollar index recovered somewhat from an overnight four-month low but remained subdued at 97.09.

The dollar ticked up to 108.61 per yen.

“The Fed was not as optimistic as people thought, and that is consistent with a lower U.S. dollar and the fall in bond yields that we saw,” said Commonwealth Bank of Australia analyst Joe Capurso.

Fed Chairman Jerome Powell said the economic outlook for the U.S. was favorable as the central bank announced its decision to hold steady, but said a significant, persistent rise in inflation would be needed to hike rates.

New economic projections showed 13 of 17 Fed policymakers foresee no change in interest rates until at least 2021.

Investors were turning their attention to the looming trade deadline, Christine Lagarde’s first meeting at the helm of the ECB, and voting in the British election.

U.S. President Donald Trump is expected to meet with top trade advisers later Thursday to discuss planned Dec. 15 tariffs on some $160 billion in Chinese goods, Reuters reported.

A decision to move ahead with the tariffs could roil financial markets and scuttle U.S.-China talks to end the 17-month-long trade war between the world’s two largest economies.

With ECB policy expected to remain unchanged, focus is likely to shift to Lagarde’s communication style as investors search for clues about the future of stimulus and the policy review.

The weaker dollar helped the British pound edge up to 1.3202.

Sterling is priced for a Conservative majority that could control parliament and lead Britain out of the European Union at the end of January, and anything short of that could prompt a slide.

Voting in the UK elections ends at 2200 GMT, with exit polls and early results likely to flow after that and traders expecting an outcome as early as 0300 GMT on Friday.

“Prices should jump around…with likely sharp reactions as each constituency release their results,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.

“We are watching GBP/USD overnight implied volatility as it rolls over, and there is no doubt it will be sky-high, with traders pricing some punchy moves in the pound. One for the bravest of souls.”

–Reuters contributed to this report

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