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Dollar Stabilizes after Wednesday Drop on Dovish Fed

Investing.com - The dollar steadied on Thursday following a drop in the previous session after dovish comments by Federal Reserve Chairman Jerome Powell, who said interest rates were now close to the “neutral” level.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, edged up 0.15% to 96.82 by 10:15 AM ET (15:15 AM GMT), after falling 0.62% on Wednesday.

In a speech on Wednesday, Powell said interest rates were "just below" the neutral level at which they neither stimulate nor hinder economic growth. The comments came less than two months after he said rates were probably "a long way" from that point.

Investors viewed the comments as an indication that the Fed would slow its program of hiking interest rates.

Market watchers were looking ahead to the minutes of the Fed’s November meeting due to be released later Thursday, for fresh indications on the path of interest rates.

The Fed is widely expected to raise rates for a fourth time this year at its upcoming meeting in December and has indicated that it may raise rates three more times in 2019, but markets are pricing in just one rate hike next year.

Data released on Thursday showed that consumer spending surged in October, while underlying inflation slowed. The Fed’s preferred inflation measure, the core personal consumption expenditures price index, rose 0.1%.

Investors were also monitoring developments in the U.S.-China trade spat ahead of the upcoming G20 summit later this week where U.S. President Donald Trump and his Chinese counterpart Xi Jinping are scheduled to hold talks.

The dollar was weaker against the yen, with USD/JPY down 0.28% to 113.36.

The euro was little changed against the U.S. currency, with EUR/USD changing hands at 1.1368.

The pound was broadly lower, with GBP/USD falling 0.44% to 1.2769 and EUR/GBP advancing 0.45% to 0.8903.

Sterling was pressured lower amid uncertainty over whether British Prime Minister Theresa May’s Brexit withdrawal deal will pass a parliamentary vote due to take place on December 11.

The Bank of England warned Wednesday that a no-deal Brexit could plunge the UK economy into the worst recession since the Second World War.

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