“One thing I think we can say with more confidence is that financial conditions are considerably tighter than they were at the time of the December meeting,” Dudley told MNI. “So if those financial conditions were to remain in place by the time we get to the March meeting, we would have to take that into consideration in terms of that monetary policy decision.”
The U.S. dollar has previously been strengthening on the prospect of a tighter monetary policy, which would help remove some of the excess liquidity sloshing around in the economy. However, without the Fed’s support, the greenback looks less attractive.
Additionally, the weaker-than-expected economic data that revealed the U.S. services sector expanded at a slower pace month-over-month also weighed on expectations the Fed would hike rates again soon, which further pressured the USD.
“Fed rate forecasts are coming under fire,” Joe Manimbo, senior market analyst at Western Union Business Solutions, told Reuters, referring to Fed policymakers’ forecasts in December of four U.S. interest rate hikes in 2016. “The notion of a sidelined Fed over the course of 2016 is gaining traction with every sub-par reading on the U.S. economy.”
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Max Chen contributed to this article.