October 30, 2019 / 1:52 AM / 22 days ago

Dollar dips as Fed signals pause in rate-cutting cycle

NEW YORK (Reuters) - The dollar fell against a basket of major currencies on Wednesday, reversing initial gains, after the Federal Reserve cut interest rates for the third time this year but signaled its rate-cut cycle might be at a pause, as was broadly expected.

FILE PHOTO: A trader shows U.S. dollar notes at a currency exchange booth in Peshawar, Pakistan December 3, 2018. REUTERS/Fayaz Aziz

In lowering its policy rate by a quarter of a percentage point to a target range of between 1.50% and 1.75%, the U.S. central bank dropped a previous reference in its policy statement that it “will act as appropriate” to sustain the economic expansion - language that was considered a sign for future rate cuts.

“That suggests that it’s going to take a little bit more weakness from here on out for the Fed to lower rates, and really it’s going to take quite a sustained turn for the worse in terms of trade discussions,” said Bipan Rai, North American head of fx strategy at CIBC Capital Markets in Toronto.

Comments by Fed Chairman Jerome Powell in the press conference following the U.S. central bank’s statement further boosted the notion that additional cuts in the near-term are unlikely.

The current stance of monetary policy is likely to remain appropriate and it would take a material reassessment in the outlook for the Fed to change its current stance, Powell said.

The dollar index rose to 98.00 as Powell spoke, the highest since Oct. 17, before retracing back to 97.53, down 0.16% on the day.

Broad expectations heading into the meeting that the Fed would adopt a more hawkish tone was seen as limiting dollar strength.

“By and large the market was positioned for a less dovish or a hawkish cut today, but there aren’t any conclusive signals that the Fed is done just yet,” Rai said.

The dollar had briefly gained earlier on Wednesday after data showed that the U.S. economy slowed less than expected in the third quarter.

The data “pointed to below trend growth, but still relatively steady and pretty solid growth in the context of what’s going on in the rest of the world,” said Erik Nelson, a currency strategist at Wells Fargo in New York.

Payrolls data for October released on Friday is the next major U.S. economic focus.

The greenback also temporarily dipped on reports that Chile has withdrawn as host of an APEC trade summit in November where the United States and China had been expected to take major steps toward ending a 15-month-old trade war.

Optimism that the U.S. and China will reach a deal has boosted risk sentiment this week.

Editing by David Gregorio and Marguerita Choy

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