On Thursday, the dollar fell to its lowest level in almost a month as the US Federal Reserve boosted its benchmark interest rate by 50 basis points b
On Thursday, the dollar fell to its lowest level in almost a month as the US Federal Reserve boosted its benchmark interest rate by 50 basis points but dismissed the possibility of further increases. The US dollar index slid 0.9 percent overnight to 102.450, from a five-year high. Investors reduced bets on the Fed staying ahead of Australia’s central bank, causing antipodean currencies to jump, particularly the Australian dollar, which saw its highest one-day percentage increase in almost a decade. The euro gained over 1% and was last worth $1.0606. For the first time in a week, the yen battled its way back above 130 per dollar, recently trading at 129.26.
Fed funds futures rallied to take some of the edge from markets’ aggressive outlook on U.S. rates, though a further 200 bps of hikes remain priced in for the rest of the year. “The Fed simply could not (or, better, would not) hurdle the hawkish bar that the market had set,” Brian Daingerfield, head of G10 foreign exchange strategy at NatWest Markets, wrote in a note to clients.
Sterling rose more than 1% to $1.2605 and swaps markets are fully pricing a 25 bp hike from the Bank of England later in the day. The Fed hike was the largest since 2000 as policymakers urgently tried to tamp down inflation. But at the press conference afterwards Chair Jerome Powell said Fed members aren’t actively considering 75-basis-point moves in the future.
“I don’t think it’s hyperbole to say that today represented the first ‘dovish’ surprise by the Fed relative to market expectations in over six months.” The Aussie dollar’s 2.2% leap was its largest since late 2011 and followed a surprisingly hawkish turn from the Reserve Bank of Australia, which began its cycle of interest rate rises with a larger-than-expected 25 bp hike on Tuesday.
The Aussie was last at $0.7236, edging a little lower from its overnight peak of $0.7265. The New Zealand dollar jumped 1.7%, its largest one-day rise in two years, to sit back above $0.65 at $0.6537. The dollar’s losses gave support to cryptocurrencies, too. Bitcoin had its best day in more than five weeks, rising 5% to sit just below $40,000. Trade was thinned in the Asia session by a public holiday in Japan.
News Summary:
- Ahead of Fed minutes, FOREX-Dollar rises from a one-month low
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