CURRENCIES: Dollar Struggles At 13-month Low As Fed Flags Sluggish Inflation

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Aussie soars to highest since 2015

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A widely watched U.S. dollar gauge languished at a 13-month low Thursday, 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, fell 0.2% at 93.522, stuck around its lowest since June 2016, 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 $1.1718 on Thursday, after settling at $1.1735, the highest since Jan. 14, 2015. The pound was at $1.3155, 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 95.88 francs compared with 95.09 late Wednesday. It held a slim gain against the yen , buying Yen111.40 versus Yen111.18.

If the dollar-yen pair "can recover the 111.50 level in North American trade today, it may be a sign that the dollar selloff is overdone," said Schlossberg.

Investors will get an update on weekly jobless claims at 8:30 a.m. Eastern Time, as well as a reading on durable goods orders in June. Figures on wholesale inventories for June are also due at the same time.

In other moves Thursday, the Australian dollar surged above 80 U.S. cents 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 06:45 ET (10:45 GMT)