CURRENCIES: Dollar Stabilizes After Falling To 13-month Low

By Carla Mozee and Anora Mahmudova, MarketWatch Features Dow Jones Newswires

Aussie soars to highest since 2015

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A widely watched U.S. dollar gauge stabilized on Thursday, but still languished near a 13-month low, struggling to shake off the dovish interpretation among investors of the Federal Reserve's policy statement.

The ICE U.S. Dollar Index , which tracks the greenback against a half-dozen other major rivals, was unchanged at 93.67, off the 13-month low it touched on Wednesday, according to FactSet data.

The dollar turned broadly lower during Wednesday's session as the Fed, led by Chairwoman Janet Yellen, was seen as striking a cautious note on inflation.

Inflation was "running below 2%", the Federal Open Market Committee said (http://www.marketwatch.com/story/fed-to-wind-down-bond-holdings-relatively-soon-2017-07-26), tweaking language from June's statement in which it said inflation was "running somewhat below 2%."

"It's been an extraordinarily volatile night of trade as the currency market continued to react to the post-FOMC fallout with dollar coming under further selling pressure in Asian and early European trade," wrote Boris Schlossberg, managing director of FX strategy at BK Asset Management, in a Thursday note.

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The euro bought $1.1700 on Thursday, after settling at $1.1735, the highest since Jan. 14, 2015. The pound was at $1.3148, up from $1.3122, the strongest New York close since September.

Schlossberg questioned if the dollar's drive lower was overdone.

"The fact of the matter is that U.S. monetary policy remains on a tightening path as the Fed tries to move towards normalization. Only a marked decline in economic activity would force Ms. Yellen and company to change their course," he said, "and unless the [July jobs data] next Friday produce a massive downside surprise such a scenario is unlikely to take hold."

The dollar extended its gain against Switzerland's currency , fetching 0.96 francs compared with 0.9506 late Wednesday. It held a slim gain against the yen , buying Yen111.40 versus Yen111.18.

If the dollar-yen pair "can recover the Yen111.50 level in North American trade today, it may be a sign that the dollar selloff is overdone," said Schlossberg.

Some analysts expect the dollar to start to recover if GDP numbers, due on Friday surprise on the upside.

"With the dollar adjusting to expectations of slower future US rate rises, if we now see some improvement in US data then the dollar could start to head higher again, especially against her weaker rivals such as the Japanese yen or Swiss franc," said Fawad Razaqzada, market analyst at Forex.com.

A couple of economic releases Thursday morning went largely unnoticed. Initial jobless claims (http://www.marketwatch.com/story/us-jobless-claims-climb-10000-to-244000-2017-07-27) in the period running from July 16 to July 22 increased by 10,000 to a seasonally adjusted 244,000, but still remain near the lowest level in decades.

Separately, durable-goods orders (http://www.marketwatch.com/story/boeing-bonanza-durable-goods-orders-soar-65-in-june-2017-07-27)leaped 6.5% last month, a three-year high, but it was entirely thanks to Boeing's summer of orders.

In other moves Thursday, the Australian dollar surged above $0.80 for the first time since May 2015 as the U.S. unit declined and after data showed industrial profits in China accelerated in May (http://www.marketwatch.com/story/china-industrial-profits-accelerate-in-may-2017-06-27). China is Australia's largest trading partner.

The Aussie traded hands at 80.14 U.S. cents in early New York trade Thursday.

(END) Dow Jones Newswires

July 27, 2017 09:13 ET (13:13 GMT)