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Dollar subdued as Trump probe, weak U.S. data overshadow Fed

20 June 2017

"Today, the Federal Open Market Committee made a decision to raise the target range for the federal funds rate by a quarter of a percentage point, bringing it to one to one and a quarter percent".

The U.S. central bank also gave a first clear outline of plans to shed its $4.5 trillion bond portfolio built up in three rounds of quantitative easing stimulus. It was below $900 billion in 2007. That rate is closely tied to interest rates on mortgages and other kinds of loans. "For those where budgets are tight and their debt burdens have been growing the last few years, this is where the signs of strain begin to emerge", says Greg McBride at Bankrate.

Fed Chair Janet Yellen said at a press conference after the decision that the unwinding plan could be put into effect "relatively soon", according to news reports. The BoE might underestimate the recent spike in prices, but if two or three MPC members see a need to follow the Fed by hiking rates the pound will appreciate sharply.

The Fed wants inflation to rise higher than that - to about 2 percent - because rising prices encourage us to spend now rather than wait.

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The policymakers now expect their favored measure of inflation to come in at 1.6 percent this year, down from the 1.9 percent they expected in March and below their 2 percent target.

"With financial conditions remaining supportive. and U.S. financials breaking higher, the Fed may see little reason to moderate its rate hike projections when meeting today", strategists at Morgan Stanley said in a note to clients.

She once again said the path of interest rates "is not a pre-set course", but the Fed's quarterly projections show they still anticipate making a third rate increase this year, with the median federal funds rate ending 2017 at 1.4 per cent. Fed officials project growth of roughly 2 percent in 2017.

"Hence there is another rate hike on the table for this year". And the Central Bank voted to raise its key rate target to the range of 1% to 1.255.

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In Wednesday's poll, only five of 23 primary dealers expected a rate hike in September, compared with 10 of 18 dealers in the June 2 poll. When the lending cost was higher in the USA than in Korea during the two year period following August of 2005, a total of around 19-point-seven trillion won of foreign capital went out of the local stock market.

The decision of the FED is not a fundamental factor affecting the manat rate against to the U.S. dollar, according to him. Thursday's fix was 87 pips, or 0.13 percent firmer than the previous fix of 6.7939.

The euro was down 0.3 percent at $1.1183, a six-day low, while the yen was flat at 109.58 per dollar.

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