Dollar Paring Losses After Initial Drop Following Fed Rate Hike

The dollar briefly spiked lower against all of its major rivals Wednesday afternoon, but has since pared its losses. The sharp move followed today's announcement from the Federal Reserve, which raised its benchmark interest rate for the third time in three months despite signs the U.S. economy has cooled off in 2017.

The Federal Open Market Committee voted to raise fed funds to between 1% and 1.25% and will start "gradual" shrinking of its $4.5 trillion balance sheet "this year."

Their so-called 'dot plot' shows one more rate hike in 2017 and three more in 2018, but the Fed's accompanying statement offered little indication they plan to raise interest rates again this summer.

Policy makers say they are "monitoring developments closely," meaning they are likely wait for confirmation that recent economic weakness is "transitory."

Retail sales in the U.S. unexpectedly decreased in the month of May, according to a report released by the Commerce Department on Wednesday. The Commerce Department said retail sales fell by 0.3 percent in May after climbing by an upwardly revised 0.4 percent in April.

The drop in sales surprised economists, who had expected sales to inch up by 0.1 percent compared to the 0.3 percent increase originally reported for the previous month.

Reflecting a steep drop in energy prices, the Labor Department released a report on Wednesday showing a modest decrease in U.S. consumer prices in the month of May. The report said the consumer price index edged down by 0.1 percent in May after rising by 0.2 percent in April. Economists had expected prices to come in unchanged.

The dollar briefly dropped to a low of $1.1294 against the Euro Wednesday afternoon, but has since bounced back to around $1.1250.

Eurozone industrial production increased for the second straight month in April, in line with expectations, data from Eurostat showed Wednesday.

Industrial production climbed a seasonally adjusted 0.5 percent month-over-month in April, faster than the 0.2 percent rise in March, which was revised from a 0.2 percent drop reported earlier. The figure also matched consensus estimate.

Employment hit a record high in both the euro area and the EU28 in the first quarter of the year amid sustained growth in the figures, preliminary data from Eurostat showed Wednesday. The number of employed totaled a seasonally adjusted 154.8 million for the Eurozone and 234.2 million for the EU28 during the first quarter. Both figures were the highest ever.

Germany's consumer price inflation slowed to a six-month low in May, as initially estimated, data from the statistical office Destatis showed Wednesday. Inflation eased to 1.5 percent in May from 2 percent in April. This was the lowest since November, when the rate was 0.8 percent.

The buck slipped to a low of $1.2817 against the pound sterling Wednesday afternoon, but has since rebounded to around $1.2775.

The UK unemployment rate remained unchanged at the lowest level since 1975, but wage growth remained subdued squeezing household spending.

The ILO jobless rate came in at 4.6 percent in the three months to April, the same rate as seen in the three months to March, data from the Office for National Statistics showed Wednesday. The rate came in line with economists' expectations.

The greenback briefly sank to over a month and a half low of Y108.685 against the Japanese Yen this afternoon, but has since bounced back to around Y109.325.

Japan's industrial production expanded as initially estimated in April, final data from the Ministry of Economy, Trade and Industry showed Wednesday. Industrial output grew 4 percent month-on-month in April, in line with the preliminary estimate published on May 31. Production had declined 1.9 percent in March.

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