September 18, 2019 / 6:43 PM / 5 months ago

FOREX-Dollar gains as Fed cuts rates, but easing outlook uncertain

    * Fed cuts rates, but gives uncertain outlook
    * Fed reduces rates on excess reserves
    * Dollar holds near 7-week high vs yen after Fed decision
    * Graphic: World FX rates in 2019

 (New throughout, updates prices, market activity and analyst comment following Fed decision and
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 18 (Reuters) - The dollar firmed on Wednesday and traded near a seven-week high against
the yen, after the Federal Reserve cut interest rates by a quarter of a percentage point, as expected, but
gave an uncertain outlook on future easing.
    The dollar touched session peaks against the yen after the Fed decision, rising in seven of the last
eight sessions.
    In cutting interest rates by 25 basis points for the second time this year, the Fed gave a nod to
ongoing global risks and "weakened" business investment and exports.
    But new projections showed policymakers at the median expected rates to stay within the new range
through 2020. However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected
one more quarter-point rate cut in 2019.
    "Another rate cut from the Fed to try to shield the U.S. economy from global headwinds. Today's move
was more of a hawkish easing in that the Fed’s median forecasts for rates suggested no more cuts this
year, while some officials dissented," said Joe Manimbo, senior market analyst at Western Union Business
Solutions in Washington.
    "The tone of the Fed's new forecasts remained largely sanguine despite the global risks. Consequently,
the dollar isn't likely to stray far from recent highs."
    In mid-afternoon trading, the dollar rose 0.2% to 108.35 yen, just below a seven-week high of 108.37
yen tested overnight. The dollar index, tracking the unit against a basket of other currencies, was
up 0.2% at 98.49.
    The euro fell 0.3% to $1.1031
    Aside from cutting interest rates, the Fed changed two key rates used to manage its main policy lever.
It lowered the  interest it pays on excess bank reserves (IOER) by 30 basis points, to 1.80%. The rate now
sits 20 basis points below the top of the target range, compared to 15 basis points previously.

    The Fed also set its offering rate for any necessary operations in the $2.2 trillion repurchase
agreement, or repo, market, at 1.70%, five basis points below the bottom of the new target range for the
policy rate.
    The changes came after turmoil this week in funding markets briefly pushed the overnight bank-to-bank
lending rates above the U.S. central bank's target range.
    After the Fed releases its policy decision, attention will turn to the Bank of Japan's meeting ending
on Thursday, to see whether it eases policy, too.
    Deepening negative rates will be an option if the BOJ eases, although the central bank may accompany
that with measures to mitigate the pain on financial institutions, sources have told Reuters.
    Currency bid prices at 2:33PM (1833 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
 Euro/Dollar      EUR=        $1.1035        $1.1071     -0.33%         -3.78%      +1.1075     +1.1026
 Dollar/Yen       JPY=        108.2800       108.1200    +0.15%         -1.80%      +108.3700   +108.0900
 Euro/Yen         EURJPY=     119.49         119.69      -0.17%         -5.33%      +119.8100   +119.4200
 Dollar/Swiss     CHF=        0.9967         0.9930      +0.37%         +1.56%      +0.9973     +0.9927
 Sterling/Dollar  GBP=        1.2469         1.2500      -0.25%         -2.26%      +1.2510     +1.2440
 Dollar/Canadian  CAD=        1.3296         1.3241      +0.42%         -2.50%      +1.3302     +1.3240
 Australian/Doll  AUD=        0.6828         0.6864      -0.52%         -3.14%      +0.6869     +0.6822
 Euro/Swiss       EURCHF=     1.0998         1.0994      +0.04%         -2.27%      +1.1019     +1.0985
 Euro/Sterling    EURGBP=     0.8847         0.8855      -0.09%         -1.52%      +0.8880     +0.8846
 NZ               NZD=        0.6322         0.6356      -0.53%         -5.88%      +0.6362     +0.6316
 Dollar/Norway    NOK=        8.9567         8.9210      +0.40%         +3.68%      +8.9712     +8.9230
 Euro/Norway      EURNOK=     9.8840         9.8792      +0.05%         -0.22%      +9.9062     +9.8678
 Dollar/Sweden    SEK=        9.7218         9.6693      +0.19%         +8.46%      +9.7316     +9.6669
 Euro/Sweden      EURSEK=     10.7280        10.7078     +0.19%         +4.52%      +10.7431    +10.7040
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette Baum and David Gregorio)
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