European session review: USD mostly higher after improved 2020 economic forecast from the Fed

USD rose slightly against most other major currencies in the European session on Thursday after the U.S. Federal Reserve left its key interest rates near zero and forecast the U.S. economy to recover from the coronavirus crisis faster than previously expected. 

At its latest policy meeting, the outcomes of which were announced on Wednesday afternoon, the Fed left the fed funds rate unchanged at 0%-0.25% as widely expected. Projections from the Fed’s policymakers also indicated that interest rates could be kept low through at least 2023,  when the labour market is likely to reache “maximum employment” and inflation is on track to “moderately exceed” the 2% inflation target. However, some traders were disappointed by the Fed’s decision to leave its monetary policy settings unchanged as they had bet on a more dovish take. 

In addition to the rate decision, the Fed’s officials also provided updated forecasts for the U.S. economy, inflation and unemployment for the coming years. They considerably improved the forecast for this year's GDP, projecting it to contract by 3.7% compared to a 6.5% decline seen in June. However, the growth forecasts for 2021 and  2022 were lowered to 4% from 5% and to 3% from 3.5%, respectively. In 2023,  GDP is expected to grow by 2.5%.

Outlook for 2020 unemployment rate was also lowered, to 7.6% from 9.3% seen in June, while the inflation projection for 2020 was increased to 1.2% from 0.8%.