Dollar Falls After Fed Announcement And Comments

On Wednesday, the US dollar fell against a basket of its peers, after the US Federal Reserve concluded its meeting and announced an interest rate hike of 75 basis points.

The increase had already been anticipated, but comments from Fed chairman Jerome Powell fueled hopes of a slower hiking path down the road.

The meeting’s aftermath

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In its attempt to control the rising inflation, the US central bank hiked its interest rate by three-quarters of a percentage point.

However, it also noted that even though the labor market showed strength, there has been a softening in other economic indicators.

Market analysts said that while the policy statement could be deemed hawkish, it has remained quite consistent and they are neutral for now.

Technically, the US dollar should have strengthened because of the hawkish stance, but it had already been priced in and the greenback has already seen a lot of movement this month so far.

The impact

Initially, after the meeting and the announcement, the US dollar moved up but did not take long to reverse its course and declined, as did Treasury yields.

Meanwhile, a rally was seen in US stocks, as the comments of the chairman of the Federal Reserve, Jerome Powell, after the meeting were regarded as dovish.

Market analysts said that hopes for a slowdown in rate hikes had brought down expectations of more rate hikes downwards and treasury yields had also fallen, but stock prices moved up.

While risk assets may have seen a rise, everything still depends on how inflation moves and whether the Fed is able to bring it down to its 2% target or not.

The CME’s Fedwatch Tool showed that expectations for half a percentage point rate hike in the September meeting of the Fed grew by 60.9%.

This had been 50.7% on Tuesday, while the possibility of a rate hike by 75 basis points declined from 41.2% to 35.2%.

Dollar movements

There was a 0.756% decline in the US dollar index, which brought it to 106.310, while a 0.97% hike was recorded in the euro which took it to $1.0212.

This put the dollar on course for its biggest percentage decline since July 19th. Earlier this month, the greenback had climbed to a two-decade high of 109.29 over bets of an oversized hike in the interest rate.

However, there has been a decline in the currency recently, as economic data shows that there could be a possible recession.

On Wednesday, data showed that there was a sharp decline in the US trade deficit in June, as there was an increase in exports.

There was also a 0.5% increase in orders for non-capital defense goods, which soothed some of the concerns about the economy.

Almost all of the decline in the euro in the previous session was wiped out. The currency had seen its biggest percentage drop in one day in two weeks.

However, concerns about a recession in Europe remain high, as gas supplies via the Nord Stream 1 pipeline from Russia to Europe were further reduced.

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