FOREX-Dollar rises from three-month lows after Fed paints gloomy picture

The dollar rose on Thursday from a three-month low which it hit in the previous session, as expectations that the global economy will recover swiftly from the coronavirus pandemic took a beating after a U.S. central bank policy meeting.

The dollar rose on Thursday from a three-month low which it hit in the previous session, as expectations that the global economy will recover swiftly from the coronavirus pandemic took a beating after a U.S. central bank policy meeting. The Federal Reserve signaled it plans years of extraordinary support for the U.S. economy, which policymakers projecting it will shrink by 6.5% in 2020 and that the unemployment rate will be 9.3% at the end of this year, and expects interest rates expected to remain near zero until the end of 2022.

The dire projections took the wind out of a broadening rally in the stock markets over the previous two weeks and sent investors scurrying to the relative safe-haven appeal of the greenback, yen and the Swiss franc. Against a basket of its rivals, the dollar edged 0.2% higher to 96.3, recovering from a three-month low overnight as Asian stocks weakened and U.S. stock futures fell more than 1%.

Market sentiment also took a hit as new coronavirus infections in the United States showed a slight increase after five weeks of declines, according to a Reuters analysis, only part of which was attributed to more testing. "The risk of a second wave outweighed the Fed's 'zero forever' message and the FX market took a distinctly risk-off mood, with a typical reaction," said Marshall Gittler, Head of Investment Research at BDSwiss Group.

High-beta currencies heavily geared towards global growth, such as the Australian dollar and the Norwegian crown, led losers in the currency space, falling 1% in early London trading. "That's been the follow-through, and it's played into a broad rebound in the dollar," said Rodrigo Catril, FX analyst at National Australia Bank in Sydney.

The euro put up the best fight of the majors, sliding only 0.2%, leaving open the possibility of more downside for the dollar once the dust settles. The single currency last bought $1.1355.