© Reuters. FILE PHOTO: US dollars are counted out by a banker at a bank in Westminster
By Eimi Yamamitsu
TOKYO (Reuters) – The dollar strengthened against major currencies on Thursday after the US Federal Reserve assessed the economic recovery positively and increased tolerance to higher inflation rates pushed up government bond yields.
At its policy meeting, the Fed pledged to keep interest rates near zero at least until the end of 2023, when the labor market hits "maximum employment" and inflation is on track to "moderately exceed" the inflation target of 2%.
The Fed also expects economic growth to improve after the coronavirus-induced decline in June.
Against six major currencies, the rate rose by 0.32% to 93.493 () and changed hands at 1.1763 against the euro (), which briefly hit a monthly low.
The greenback initially fell after the Fed announcement and unexpectedly weak US retail sales, but moved into positive territory following Chairman Jerome Powell's comment on the economic outlook.
A broad dollar buying followed after the benchmark rose above 0.7% overnight, a reaction similar to that at the Fed's Jackson Hole Symposium last month, said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities.
"It's the same reaction the market had when Fed Chair Powell rolled out a new framework last month and longer-term yields rose after the announcement. With the higher interest rates, I think people feel like they can't sell the." Dollars, "he said.
Analysts said there is a risk of economic activity slowing if fiscal stimulus is not given.
"In addition to the presidential election, I think the focus will be on US financial assistance, which Powell says is also essential," said Shinichiro Kadota, senior strategist at Barclays (LON :). "Congress is still having issues with business stimulus talks and the markets are looking to see if this can be resolved."
Among Asian currencies, the Australian dollar rose briefly on strong employment data but retraced gains as the currency was inundated by a firmer dollar, most recently trading 0.53% to $ 0.72665.
The Bank of Japan kept its monetary policy stable on Thursday, saying the country's economy "remained in dire straits but has started to recover," suggesting that immediate incentives were not needed to support the activity.
The political decision came after Yoshihide Suga, a longtime advisor to Shinzo Abe who pledged to continue Abenomics to restore employment, was officially elected Japan's new Prime Minister on Wednesday.
Market participants will focus on comments from BOJ Governor Haruhiko Kuroda on how the central bank would coordinate monetary policy with the new Suga administration.
The safe-haven Japanese yen changed hands against the greenback at 105.08, a fraction below a 2-1 / 2 month high of 104.81 that was marked overnight.
Elsewhere, offshore trading was trading at 6.775 per dollar.
The focus of the British pound is now on the tensions over Brexit after the government decided on Wednesday to stave off an uprising in Prime Minister Boris Johnson's own party and give Parliament a say in the use of post-Brexit powers.
The pound was last at $ 1.2932 after falling more than 3.5% against the greenback and the euro last week.
It changed hands against the euro at 0.9098 pence per euro, close to a 5-1 / 2-month low earlier this week ().
The Bank of England is likely to signal that it is ready to provide further impetus for the coronavirus-hit UK economy in its political decision due later in the day.
The 0.67% traded value was $ 0.6690 after data showed New Zealand fell into its deepest plunge ever when the coronavirus outbreak crippled business.