”Doubts about US growth hit dollar
The dollar dropped to a fresh two-month low on a trade-weighted basis on Thursday after a dovish outlook from the Federal Reserve raised the prospect of further monetary easing in the US.
The minutes of the Fed’s June policy meeting revealed a clear shift in emphasis from the central bank, showing increasing concerns over the sustainability of US economic activity.
The Fed lowered its 2010 growth forecast and reduced its inflation projections. This raised speculation that the central bank might have to consider further monetary policy easing measures to stimulate the economy.
Indeed, the Fed said while testing on draining liquidity out of the financial system as part of its exit strategy from its ultra-loose monetary policy would continue, it would also have to consider further
easing measures if the outlook was to worsen ‘appreciably.’
Derek Halpenny at Bank of Tokyo-Mitsubishi UFJ said the Fed statement was crucial and implied clearly that weak economic data from the US now would encourage short-term yields fall as investors priced in the risk of renewed monetary easing.”
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