Dollar pares gains as Fed holds rates, forecasts slower growth

The dollar pared gains against the euro on Wednesday, after the Federal Reserve held interest rates steady as expected, but indicated policymakers expect to cut borrowing costs by half a percentage point by the end of this year. Policymakers projected likely two quarter-point interest-rate cuts later this year, the same median forecast as three months ago, even as they forecast slower economic growth and higher inflation. Federal Reserve Chair Jerome Powell on Wednesday said uncertainty at present is "unusually elevated" as he described the challenges central bank officials faced in arriving at new projections for the economic outlook amid the wave of new policy maneuvers by the Trump administration. Taking stock of the Trump administration's rollout of tariffs, Fed officials actually marked up their outlook for inflation this year, with their preferred measure of price increases expected to end the year at 2.7% versus the 2.5% pace anticipated in December. The Fed targets inflation at 2%.The Fed also said it will slow the ongoing drawdown of its balance sheet, known as quantitative tightening."The dollar's moved off of this is pretty calm, all things considered," Helen Given, director of trading at Monex USA, said. "I think that has to do with the fact that no one really wants to get caught on the wrong side of any trade," Given said. The buck has sold off about 6% against the euro since mid-January as investors grew concerned over the economic fallout of President policies on trade and tariffs. While the U.S. currency has steadied in recent sessions, the near-term outlook for the currency hinges on the strength of incoming economic data. "I think that we're probably going to be kind of floating around here until we get some firm first-quarter GDP data ... that's going to be a really big tell for traders as to whether this economic weakness that everyone's worried about, it's fully materializing," Given said. Against the dollar, the euro was down 0.3% to $1.0912 after slipping as low as $1.0860, earlier in the session. Futures on the federal funds rate, which measures the cost of unsecured overnight loans between banks, priced in 64 basis points of easing this year, or about two rate reductions, in line with what the Federal Reserve projected in its rate forecasts released on Wednesday. "A lot will depend on how the inflation-versus-growth trade-off develops—growth may continue weakening, and the Fed may need to cut rates more forcefully than expected," Matthias Scheiber, head of the multi-asset solutions team at Allspring Global Investments in London. The buck found some support earlier in the day from a brief jump in volatility after authorities detained Turkish President Tayyip Erdogan's main political rival, knocking the lira by about 12% to a record low. The Turkish lira plunged amid political turmoil in Turkey. Istanbul mayor Ekrem Imamoglu was detained on charges of corruption and aiding a terrorist group in what the main opposition party called "a coup against our next president." The dollar was last up 3.6% against the lira at 37.97, after rising to a record high of 42, earlier in the session. The U.S. currency was 0.3% lower against the Japanese yen at 148.85, after the Bank of Japan held interest rates steady earlier on Wednesday. The widely expected BOJ decision underscored policymakers' preference to spend more time gauging how mounting global economic risks from higher U.S. could affect Japan's fragile recovery."For now, the BOJ appears content to bide its time, having last raised rates two months ago. With inflation trends broadly tracking the bank’s forecasts, the consensus among economists is that the next move may not come until June or July," Fawad Razaqzada, Market Analyst at City Index, said in a note. Meanwhile, bitcoin , the world's largest cryptocurrency by market cap, rose 4.6% to $85,802.