Dollar Lifted by Upbeat Fed

The dollar index which tracks the US currency against a basket of six rivals was flat on the day at 96.932

The dollar index which tracks the US currency against a basket of six rivals was flat on the day at 96.932

At 1.55pm, the rupee was trading at 64.27 a dollar, up 0.11% from its Tuesday's close of 64.34.

The Fed said a recent softening in inflation was seen as transitory, but the latest tepid price readings made investors question its view that the US economy is continuing to improve.

While it remains to be seen whether the latest weak US inflation prints prove to be just as transitory as the Fed thinks, the euro dropped as much as 0.5 percent to $1.1164 in London. The core CPI increased 1.7 percent year-on-year, the smallest rise since May 2015, after advancing 1.9 percent in April. Interest to add fresh shorts gained traction on the break of $1.1185 support, said the traders, who asked not to be identified as they weren't authorized to speak publicly.

The Labor Department said its Consumer Price Index dipped 0.1 percent last month, weighed down by declining prices for gasoline, apparel, airline fares, motor vehicles, communication and medical care services, among others.

"Although the hawkish surprise offered a temporary boost to the dollar, markets have not bought into this newfound optimism as expectations of another interest rate increase in 2017 now stand below 50%".

U.S. consumer prices slowed further than expected in May.

Stocks rose on Wednesday, but worries about stretched valuations and caution before a near-certain rate hike by the U.S. Federal Reserve kept their gains in check, while the dollar steadied against a basket of major currencies.

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"In this climate, there are no incentives to buy the dollar", she said. The Fed's signals for the rest of 2017 will be vital for US Dollar exchange rate movement going forward.

On a less positive note, another report showed that US industrial production was flat in May, disappointing expectations for a 0.2% rise.

U.S. industrial production came in worse than expected month-on-month, at a stagnant 0%.

Charles Melchreit of Pioneer Investments says markets may be finding it "a bit of a comforting outcome", that the Fed isn't willing to shift the rate hike path it has set out that quickly, even if current inflation numbers aren't backing it up.

The Fed hiked its benchmark overnight interest rate by 25 basis points to range of 1.00 percent to 1.25 percent, and said it would start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities this year.

Retail sales fell 0.3 per cent last month - the largest fall since January 2016 and way below economists' expectations for a 0.1 per cent gain - amid declining purchases of motor vehicles and discretionary spending. Crude traded near a seven-month low.

Optimism about the global economy also underpinned European equities where the pan-European STOXX 600 (.STOXX) was up 0.6 percent, led by industrials and financials. Manufacturing production slipped from 1.1% to 0.4%.

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