The US dollar witnesses slight pullback as Fed takes a hawkish stance

The dollar found some footing on Thursday morning after an initial pullback despite the Federal Reserve’s hike of interest rate on Wednesday.

Following a surprise high inflation number last week, markets anticipated the Fed’s 75 basis point move on Wednesday and factored in several more. After Chairman Jerome Powell’s news conference, however, the dollar sank, stopping during Asia trade.

Fed members significantly increased their forecasts for the benchmark funds rate’s peak, with the median forecast putting it at roughly 3.8% in 2023, far higher than the 2.8% median forecast given in March.

That, on the other hand, was first welcomed because it was a little lower than the 4% and above what futures markets had predicted, and Powell’s remarks to reporters were devoid of surprises.

What you should know

  • The dollar index’s reversal along with rates after the Fed lifted rates 75 basis point speaks directly to elevated short-term expectations. The dollar index traded as low as 104.78 down 0.28%yesterday before gaining pace this morning to trade at 105.21 at the time of writing.
  • The dollar gained 0.4% to 134.25 yen, as the Fed’s rate hike path contrasts sharply with the Bank of Japan’s decision to keep interest rates at zero.
  • Even though job numbers were better than expected, the Australian dollar struggled to add much to its Wednesday gains. At the time of this report, it was last trading at $0.7016, up 0.2%.
  • The US dollar weakened against the New Zealand currency on Thursday, but the kiwi struggled to gain ground after statistics revealed an unexpected economic decline.
  • The Bank of England’s monetary policy decision will be the focus of the market. The Bank of England will evaluate data from the week, including a second monthly economic decline in April and a rise in the unemployment rate to 3.8%.
  • While economic data has been disappointing, the Bank’s key concern is inflationary pressure. The FED’s 75-basis-point rate hike on Wednesday may provide an incentive for the BoE to deliver a larger-than-expected rate hike to halt the Pound’s downward trend.
  • At the time of writing, the GBP was down by 0.58 % to $1.21401 against the dollar.
  • A mixed start to the day saw the Pound rise to an early morning high of $1.2189 before falling to a low of $1.21413.

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