Dollar Falls as Markets React to U.S Interest Rate Hike
The United States dollar was lower against its major trading partners early Thursday after the Federal Open Market Committee announced an expected 25-basis point rate increase Wednesday afternoon.
The FOMC’s statement and rate outlook point to further rate increases in 2022 and 2023 that will bring the federal funds rate above its long-term neutral rate to tamp down inflation. Another 150 basis points of tightening is expected for 2022, more than markets had been predicting.
Federal Reserve Chairman Jerome Powell said that the US economy remains strong and can withstand the Fed’s tighter monetary policy, which includes beginning balance sheet reduction as soon as the next FOMC meeting in May.
Thursday’s data schedule includes home construction and industrial production releases for February and weekly jobless claims. Existing home sales data is expected to be released on Friday.
A quick summary of foreign exchange activity heading into Thursday shows that GBP-USD ticked up to 1.3186 from 1.3148 at the Wednesday US close and 1.306 a day earlier. The highlight for Thursday is the Bank of England’s interest rate announcement, expected today.
The BOE is widely expected to raise its key interest rate by another 25 basis points to combat rising inflation that is expected to accelerate due to the situation in Ukraine, with an outside chance of a 50-bps increase. UK car registrations rose solidly in February, data released overnight showed.
EUR-USD rose to 1.1048 from 1.1035 at the Wednesday US close and 1.1006 at the same point a day ago. EU consumer inflation accelerated in February due to rising energy prices according to data released earlier on Thursday.
Additionally, car registrations rose in Spain and Germany in February but declined in France and Italy. European Central Bank President Christine Lagarde said earlier Thursday that ECB will adapt the pace of its debt purchase program based on the effects of the situation in Ukraine.
USD-JPY fell to 118.6015 from 118.7613 at the Wednesday US close but remained above the 118.2649 level a day earlier. Japanese core machinery orders declined in January after three straight gains, data released overnight showed.
Japanese inflation data will be released on Friday ahead of the Bank of Japan’s post-meeting announcement. No policy change is expected.
USD-CAD fell to 1.2656 from 1.2676 at the Wednesday US close and from 1.2708 a day earlier. There are no Canadian data releases scheduled for Thursday, so the focus is on Canada retail sales data on Friday.
Consumer price data released on Wednesday showed a further acceleration in February. A further rate increase is expected at the April Bank of Canada meeting. # Dollar Falls as Markets React Interest Rate Hike
READ: How Will Bitcoin Prices React to Central Banks’ Reviews?
