Traders Eye Dollar, Fed Meeting

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It has raised that rate three times since December as the economy has gradually improved.

Fed officials cautioned that the devastation of Hurricanes Harvey, Irma and Maria would hold back the USA economy in the "near term".

In reaction to an unchanged interest rate the Dollars fell sharply with the NZDUSD spiking to 0.7430 before the accompanying statement reversed the move.

"The anticipated announcement of the start of balance sheet normalisation and the likelihood of the Fed keeping the option of a December rate hike alive has been the catalyst for last night's Dollars move", traders at HiFX said.

But although the dollar has since risen sharply versus the yen, against a basket of major currencies it gained only half a percent last week. But continuing ultra-low interest rates or bond-purchase programs for too long could spark a sudden and sharp increase in prices. But they said the storms would not "materially alter" the country's economy overall.

The Fed left rates unchanged for now, as was widely anticipated, but investors' expectations changed for December after the US central bank signaled one more rate hike by year-end despite recent weak inflation readings.

"The Fed took another step on its path of attractive normalization, announcing that the gradual balance sheet reduction will start next month and limiting revisions to both projections and policy guidance", said Mohamed El-Erian, Chief Economic Adviser At Allianz, in California.

Bond prices rose. The yield on the 10-year Treasury note fell to 2.23 percent. Late in the NY day, the American Petroleum Institute industry group said USA crude stocks rose by 1.4 million barrels in the week to September 15. The FOMC repeated language saying "near-term risks to the economic outlook appear roughly balanced".

YELLEN: The decisions that we've made this year about rates and today about our balance sheet are ones we have taken because we feel the USA economy is performing well. But it forecasts only two rate increases in 2019 and one in 2020.

As expected, central bank officials voted to hold the benchmark federal funds rate steady at between 1 percent and 1.25 percent.

And by December the Fed may have a more dovish makeup, given that Vice Chair Stanley Fischer, a proponent of tightening, plans to step down next month. The reduction in assets will be slow - just US$10 billion a month to start.

'The significance of the announcement, whilst expected, should not be under appreciated, ' said Adrian Lowcock, investment director at Architas. Instead they employed an unusual central bank tool called quantitative easing.

"Certainly that will have a big influence as we look towards the readings on inflation going forward". "It means more people have more fears than before and they're protecting positions".

The decision to set the first balance sheet roll-offs for October was in line with the expectations of a majority of analysts surveyed by Bloomberg News ahead of the meeting.

Mark Zandi, chief economist at Moody's Analytics, told AFP the Fed should raise rates, because inflation is inevitable given steady growth and falling unemployment.

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