Dollar under pressure after weak US data and dovish Fed

The US dollar was weak after the Federal Reserve released its latest policy meeting minutes on Wednesday. The minutes were not as hawkish as markets expected and they reduced hopes for higher interest rates around the middle of this year. Until recently some analysts expected a rate hike by June but have now pushed back their expectations. Fed officials warned a premature rate increase might weigh on economic growth.

Meanwhile, a slew of recent lackluster US economic indicators are also keeping a lid on the dollar’s upward momentum. Economic releases on Tuesday came in weaker than expected. Construction on new US homes fell 2% in January to an annual rate of 1.07 million units, as heavy snowfall hindered builders in some regions such as the Midwest and Northeast. Meanwhile, industrial production rose 0.2% in January versus a 0.4% rise.

The dollar traded at ¥118.54 in early Asian session trading on Thursday, compared with ¥118.63 late Wednesday in New York. The 2-year US Treasury note suffered its biggest 1-day drop in more than 3 years.

Reaction on the stock market was smaller than in the bond market. Treasuries rallied, driving yields down 6 basis points to 2.08%.
The S&P 500 closed less than a point below its previous closing record, reached on Tuesday, ending at 2,099.66.

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