Dollar on back foot despite Fed signal on rate hikes

US one hundred dollar bills. (File Photo source: REUTERS/Kim Hong-Ji/Illustration

After Janet Yellen's final meeting as Fed governor, the US central bank's policy board said Wednesday that while the nation's inflation remains below target, it expects it to move up this year.

The Fed's comments provided a partial boost for the dollar, although it stumbled during European trading hours.

"The dollar did not get the lift we expected from the Fed monetary policy meeting yesterday," said ADS Securities analyst Konstantinos Anthis on Thursday.

"Even though the central bank made it clear that they see inflation moving higher this year the US currency failed to capitalise on this news."

The greenback is still under pressure against most of its peers as central banks around the world look to tighten monetary policy more in line with the US.

'UNLOVED'

"It's remarkable how the dollar remains depressed and unloved, despite the Federal Reserve expressing optimism over increased inflationary pressures as the year moves on," said Lukman Otunuga at FXTM online currency trading brokerage.

Equities didn't fare better.

After surging in the first four weeks of the year, stocks have been weighed down this week by worries over the prospect of higher US Treasury bond yields and interest rates could stymie growth.

"The equity selloff has regained its dominance in today's trade, with the shift out of bonds raising nervousness in global stocks, leading European and US indices into the red," said market analyst Joshua Mahony at online trading firm IG.

"The shift out of bonds has seemingly spooked market confidence despite the fact that such a move has its root in a stronger economic performance," he added.

On Wall Street, the Dow was only barely above the break even line in late morning trading despite a trove of largely solid corporate earnings, while both the S&P 500 and Nasdaq Composite were in the red.

Facebook jumped 4.5 per cent after reporting a 20 per cent rise in fourth-quarter profits to US$4.3 billion as ad revenue and the ranks of users grew.

Microsoft edged up 0.6 per cent after reporting a 12 per cent rise in quarterly revenues to US$28.9 billion thanks to gains in business services and cloud computing. But one-time charges connected to US tax reform and the repatriation of overseas profits led to a US$6.3 billion loss.

In Europe, the DAX slumped 1.4 per cent, driven lower by a 2.6 per cent drop in shares in Daimler, the manufacturer of Mercedes-Benz cars.

London was hampered by a strong pound, which tends to weigh on the share prices of multinationals that earn in currencies other than sterling, with the FTSE 100 index ending the day down 0.6 per cent.

The FTSE was also dented by telecoms giant Vodafone, which announced a drop in revenue during its third quarter - sending its share price slinking 4.6 per cent lower.

In Asia, Tokyo's main stocks index jumped almost 2.0 per cent on a weaker yen and bargain-buying following a six-day losing streak.