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The dollar has dropped from a two-decade high as the Federal Reserve announces a 75-basis-point rate hike

Image: Reuters Berita 24 English - The dollar fell from a 20-year high on Thursday after the Federal Reserve raised interest rates for the f...

Image: Reuters

Berita 24 English - The dollar fell from a 20-year high on Thursday after the Federal Reserve raised interest rates for the first time in decades, but investors were cooled by the Fed's warning that such strong movements higher were unlikely to become the norm.

Following a shockingly high inflation data last week, markets had expected a 75 basis point boost and had priced in several more. The dollar had risen to new highs as US yields increased, but it sank after Fed Chair Jerome Powell's news conference.

It last traded at $1.0464 per euro, while the Australian currency added 0.4 percent to its nearly 2% overnight gain to hit $0.7031 in the Asian session.

In Asia, the dollar index traded at 104.84, down from a two-decade high of 105.79 on Wednesday.

Powell told reporters, "Today's 75-basis-point increase is a particularly significant one."

"I don't expect moves of this magnitude to be typical," he said, adding that a 50- or 75-basis-point boost next month was likely.

Fed members also increased their forecasts for the benchmark funds rate's peak, with the median forecast putting it at roughly 3.8 percent in 2023, up from the 2.8 percent peak they predicted in March.

However, this was initially welcomed news because it was less than the 4%-plus that futures markets had predicted earlier this week.

"Against a market pricing in a 3.75 percent Fed funds rate by year's end, (Powell's) comments calmed the market, weighing on the dollar," ANZ Bank analysts wrote in a report.

"Some unwinding of volatility is anticipated in the coming days as U.S. policy expectations fall back to earth, but the Fed still has a lot of work to do... risk appetite has breathed a sigh of relief - let's see if it lasts."

On Thursday morning, a slight drop in the yen was already being unwound, as the Fed's tone contrasts sharply with the Bank of Japan's redoubling of efforts to keep interest rates around zero.

After hitting a 24-year low of 135.60 on Wednesday, the yen last traded at 134.39 per dollar.

The Bank of Japan will meet on Friday in the midst of a speculative attack on its yield-curve-control policy, which has resulted in erratic trading in Japanese government bonds this week. [JP/]

The dollar weakened against the New Zealand currency on Thursday, but the kiwi struggled to gain ground after statistics revealed an unexpected economic decline.

It most recently purchased $0.6292.

Sterling held overnight gains at $1.2178 ahead of a Bank of England meeting later in the day, which is expected to result in at least a 25-basis-point raise, with swaps pricing predicting a 50-basis-point boost.

Traders will also be paying particular attention to several speakers from the European Central Bank, who promised to keep borrowing costs for the currency bloc's periphery under control following an emergency meeting on Wednesday.

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