The US Dollar fell in the overnight session after the Federal Reserve kept interest rates unchanged on Wednesday and said it expected to start winding down its massive holdings of bonds “relatively soon” in a sign of confidence in the US economy.
Data released yesterday showed that the UK’s lacklustre economic performance extended into the second quarter, with modest growth in the reported period.
The expansion of 0.3% in second quarter was in line with estimates, after a reading of 0.2% in the three months through to March, aka Q1. The Office for National Statistics said the economy experienced a “notable slowdown in the first half of this year.”
Even with the improvement in retailing in the second quarter, the sector posted flat growth over the six months through to June as consumers have struggled this year as higher inflation, following the pound’s decline since the Brexit vote which has put a strain on their pockets.
Earlier this week the International Monetary Fund cut its 2017 growth forecast for the U.K. to 1.7% from 2%.
The US central bank kept its benchmark lending rate on hold and said it was continuing the slow path of monetary tightening that has lifted rates by a percentage point since 2015. The Fed’s rate-setting committee indicated the economy was growing moderately and job gains had been solid. They also noted that recent inflation data has worried some policymakers but it expected the economy to continue strengthening.
Following the release US stock prices rose, yields on US government debt fell and the US dollar fell too against a basket of currencies.
Since the 2007/8 financial crisis the Fed has pumped trillions of US Dollars into the economy and as a result, now has a balance sheet of $4.5 trillion that it wants to start unwinding.