By Karen Brettell and Chibuike Oguh
NEW YORK (Reuters) -The dollar edged higher in choppy trading after the Federal Reserve on Wednesday cut interest rates by half a percentage point, citing greater confidence that inflation will continue to recede to the U.S. central bank's 2% annual target.
The Fed cut the overnight rate to the 4.75%-5.00% range, and policymakers see the Fed's benchmark rate falling by another half of a percentage point by the end of this year, another full percentage point in 2025, and by a final half percentage point in 2026 to end in a 2.75%-3.00% range.
The dollar initially trading lower following the Fed announcement, but pared those losses after Chair Jerome Powell finished his press conference.
The dollar index was last up 0.05% on the day at 100.970. It earlier reached 100.21, the lowest since July 2023. The euro dropped 0.01% to $1.111275. The greenback was flat at 142.370 Japanese yen.
"It's a more dovish cut. It certainly wasn't a hawkish cut," said Vassili Serebriakov, FX & macro strategist at UBS in New York.
"The way we thought about it before the announcement is that you know a 50-basis point cut is dollar negative. If they had cut by 25 bps, there were different scenarios where the dollar could perform. But a 50-basis point cut is unambiguously dollar negative," Serebriakov added.
During his press conference, Powell said he does not see any indication of a recession or even an economic downturn ahead.
"I don't see anything in the economy right now that suggests that the likelihood of a recession," Powell said. "You see growth at a solid rate, you see inflation coming down, and you see a labor market that's still at very solid levels."
Following the Fed's rate move, futures on the fed funds rate, which measures the cost of unsecured overnight loans between banks, have priced in about 70 basis points of more rate cuts this year.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, hit its steepest level since July 2022 following the Fed's cut. It was last at 7.8 basis points.
Sterling, the best performing G10 currency of the year, rose 0.28% at $1.3200. The yuan strengthened against the dollar at 7.0780 per dollar in offshore trading, making it the strongest since June 2023.
"The market was pretty much 50-50 going into the decision. So it surprises obviously half the market," said Brad Bechtel, global head of FX at Jefferies in New York. "And clearly the Fed is trying to get out in front of the slowdown in the U.S. economy and provide support. But so far, the reaction in the market isn't overly crazy."
Currency bid prices at 18
September 08:15 p.m. GMT
Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid
Dollar index 101 100.91 0.11% -0.36% 101.14 100.21
Euro/Dollar 1.111 1.1115 -0.04% 0.65% $1.1189 $1.1097
Dollar/Yen 142.42 142.42 -0.07% 0.9% 142.695 140.53
Euro/Yen 1.111 158.24 -0.01% 1.67% 158.36 157.06
Dollar/Swiss 0.8465 0.8472 -0.09% 0.57% 0.848 0.8392
Sterling/Dollar 1.3194 1.3163 0.28% 3.73% $1.3298 $1.3157
Dollar/Canadian 1.3611 1.3599 0.11% 2.7% 1.3622 1.3541
Aussie/Dollar 0.6755 0.6756 0% -0.92% $0.682 $0.6742
Euro/Swiss 0.9403 0.9414 -0.12% 1.26% 0.9416 0.9382
Euro/Sterling 0.8417 0.8444 -0.32% -2.9% 0.8453 0.8405
NZ Dollar/Dollar 0.6199 0.6187 0.22% -1.88% $0.6268 0.6184
Dollar/Norway 10.5984 10.5945 0.04% 4.57% 10.6202 10.478
Euro/Norway 11.7784 11.7919 -0.11% 4.94% 11.8138 11.7172
Dollar/Sweden 10.216 10.189 0.26% 1.48% 10.2304 10.106
Euro/Sweden 11.351 11.3237 0.24% 2.03% 11.3564 11.3012