“The mention of “monitoring developments abroad” hints at a concern with global conditions such as the Chinese stock market sell off played a significant part in the central bank holding rates”, said Alfonso Esparza, senior currency analyst at Oanda, in a note to clients released after the decision. In midafternoon trading, the euro rose to three-week highs of $1.1420 and was last at $1.1387, up 0.9 percent.
The Australian dollar was nearly unchanged against its USA counterpart on Wednesday, hovering close to a two-week high as investors remained cautious ahead of the Federal Reserve’s highly anticipated policy statement due the next day.
In one of the most keenly watched decisions in recent years, the Fed said it had decided not to hike rates because of heightened uncertainty in world markets. It left open the possibility of a modest policy tightening later this year.
The two year swap rate was unchanged at 2.74 percent and 10 year swaps rose 2 basis points to 3.66 percent.
After Wednesday’s lackluster inflation figures, the chance that the USA central bank would end its near-zero interest rate policy fell to 21 percent FFU5, down from 27 percent late on Tuesday, according to CME Group’s FedWatch program.
Nonetheless, the safe haven yen is still well-above its pre-FOMC position, with USDJPY just re-emerging above 120.00 at the time of writing.
The key event for markets on Friday will be testimony by Reserve Bank of Australia governor Glenn Stevens to the House of Representatives Economics Committee, at Parliament House in Canberra.
Most suggested an increase in the Fed rate to between 0.25 and 0.50 percent. Stocks initially edged higher before turning lower in choppy trade, while prices for U.S. Treasuries rose.
The dollar gave back some gains today, down about 2 percent against the yen. It has made session high at 1.3250 and lows at 1.3159 levels.
“We’re not talking about a globe that is collapsing, some parts of the globe are slowing down”.
“We may see an extension of the rally if the Fed does not raise [rates] and alters [its] statement language to a more dovish tilt”, said Patrick Kerr, owner of private-investment firm The Kerr Organization.