* Dollar index sheds 0.5% after FOMC
* Fed sees faster economic recovery but no rate hike through 2023
* Bond yields stuck near 13-month high
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
By Hideyuki Sano
TOKYO, March 18 (Reuters) - The U.S. dollar was on the defensive on Thursday after the Federal Reserve signalled it was in no hurry to raise interest rates through all of 2023 even as it saw a V-shaped recovery in the world's largest economy.
Investors dumped the dollar and rushed to more risk-sensitive currencies as Fed Chairman Jerome Powell, true to his dovish credentials, dampened speculation a stronger economic outlook could propel the central bank to wind back its stimulus.
"It was the usual Jay after all," said Bart Wakabayashi, Tokyo Branch Manager of State Street (NYSE: STT ) Bank.
"Markets have been thinking the Fed will raise rates perhaps once next year and a couple of more times in 2023... There will remain questions over whether the Fed can control inflation."
The dollar index dropped 0.5% to its lowest levels in two weeks and last stood at 91.400 =USD .
The U.S. central bank now sees the economy growing 6.5% this year, which would be the largest annual jump in gross domestic product since 1984 and a whopping 2.3 percentage points upgrade from its projection just three months ago. is now expected to exceed the Fed's 2% target to 2.4% this year, though Fed officials think it will move back to around 2% in subsequent years, thus allowing them to keep interest rates at current low levels.
The Fed's so-called "dot plots" put policymakers' median projection of interest rates at zero percent in 2023, even though seven of 18 officials now expect higher rates in 2023, compared to five in December.
The 10-year U.S. Treasuries yield gyrated wildly before settling around 1.648% US10YT=RR for now, having hit an 13-month high just before the Fed's announcement.
Traders, however, see potential for further market volatility.
"While our view remains that movements in yields through the latter part of February and into March have been akin to a ‘taper-less tantrum', there is potential for further market volatility, perhaps around 'data tantrums' over the coming months," wrote Gurpreet Gill, macro strategist at Goldman Sachs (NYSE: GS ) Asset Management in London.
The British pound traded at $1.3970 GBP=D4 , having gained about 0.5% overnight.
The Bank of England is expected to keep its benchmark Bank Rate at a historic low of 0.1% and its bond-buying programme unchanged at 895 billion pounds later in the day. to what we've seen from the Fed, the Bank of England will talk up their prospects of the economy relative to where we've been, but at the same time emphasize that we're still a long way from full recovery," said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.
"We expect the BoE to gently warn against the shift in market pricing from a rate cut to around 50bps of hikes over the next three years."
The Australian dollar rose to a two-week high of $0.78105 AUD=D4 whereas its New Zealand counterpart briefly lost momentum, after the country posted a surprise contraction in GDP in the final three months of last year. kiwi dollar last traded at $0.7247 NZD=D4 .
Elsewhere, the Brazilian central bank delivered its first interest rate hike in nearly six years with a larger-than-expected 75 basis point increase to 2.75%, and flagged a similar move in May to fight inflation. was no reaction in the Asian morning as the Brazilian real BRL= is hardly traded offshore, with few quotes available, traders said.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.