Dollar near 4-month low after dovish Fed; Focus still on ECB and U.K. Election

On Thursday, the dollar hovered near a four-month low, nursing its steepest losses in weeks after the Fed forecast that it would keep interest rates on hold in 2020.

Investors also remain cautious ahead of the Dec 15 deadline for the next round of U.S. trade tariffs on Chinese goods to take effect.

They are also focusing on the European Central Bank's meeting and the U.K.'s election to Thursday.

The USD hit its lowest in more than a month against the euro after the Fed meeting to hold just above that level at 1.1126 by 09:24 GMT.

The U.S. Dollar Index recovered from an overnight four-month low but remained subdued at 97.09.

The dollar ticked up to 108.61 against the yen.

"The Fed was not as optimistic as people thought, and that is consistent with a lower U.S. dollar and the fall in bond yields that we saw," said Joe Capurso.

Capurso is the Commonwealth Bank of Australia analyst.

Jerome Powell, the Fed Chairman, said the economic outlook for the U.S. was favorable as the Fed announced its decision to hold steady. But he noted a significant and persistent rise in inflation would be needed to hike rates.

New economic projections showed 13 of 17 Fed policymakers foresee no change in interest rates until at least 2021.

Investors are now turning their attention to the looming trade deadline.

Focus on the ECB and the U.K. election

The ECB meeting is Christine Lagarde's first meeting at the helm of the ECB. Voting in the U.K. election is also in focus today.

According to Reuters, Trump will meet top trade advisers later on Thursday to discuss the planned Dec 15 tariffs on Chinese goods.

If Trump decides to proceed with the tariffs, it could roil financial markets and scuttle the US-China talks to end the long-standing trade war between them.

Investors do not anticipate any changes in the ECB policy, so they shifted focus to Lagarde's communication style. They’re searching for clues about the future of stimulus and the policy review.

The weaker dollar helped the pound to edge up to 1.3202. The GBP os priced for a Conservative majority that could control parliament and lead Britain out of the E.U. at the end of Jan. Anything short of that could prompt a slide.

Voting in the U.K. elections ends at 2200 GMT, with exit polls and early results likely to flow after that, and traders expecting an outcome as early as 0300 GMT on Friday.

"Prices should jump around...with likely sharp reactions as each constituency release their results," said Chris Weston.

 Chris Weston is the head of research at Melbourne brokerage Pepperstone.

"We are watching GBP/USD overnight implied volatility as it rolls over. There is no doubt it will be sky-high, with traders pricing some punchy moves in the pound. One for the bravest of souls," he added.