Dollar crashes as Fed boosts interest rates

On Thursday, the dollar was under duress near seven-week lows after the U.S. Federal Reserve was close to calling time on the interest rate increase; the market didn’t know if it was more or less over.

The Federal Reserve increased its interest rates by 0.25% to 5% yesterday, in line with widespread expectations, but modified the wording of its statement, removing the reference to “ongoing increases,” suggesting it is the most recent increase in the tightening of the current cycle could be. Future markets are now targeting another 25 basic point gain.

Following the release, the U.S. dollar weakened in line with its long-term trend. The 2-year Treasury yield decreased firmly, now trading below 4%.

The U.S. dollar added to its long-term decline yesterday in the forex market as part of a dominant downtrend.

The focus on the banking front is majorly on the U.S. regional lenders, where there is an elevated worry amongst depositors.

The dollar index that measures the currency against six other major peers declined by 0.3%, in line for its sixth straight daily release; this has been the longest streak since September 2021.

U.S. Treasury Secretary scared the trading market by telling congress she had not discussed or considered blanket bank deposit insurance.

Other consequences of an increase in Fed rate

Future markets only refer to an even chance of another rate hike, unlike in Europe markets are pricing in another 50 basis points. The gap pushed EUR/EBS higher, hitting a seven-week high of $1.0912 on Wednesday and nearing a retest of $1.0898 in the Asian session.

Major stock markets like NASDAQ 100 Index and S&P 500 Index closed lower by 1.5% each yesterday, but the future market has recovered during the Asian session. The Chinese Hang Seng Index has increased by 1.5%. The banking stock shares still appear weak.

Bitcoin price still looks potent after making a new 9-month high yesterday but has held a resistance level at $28,846.

Since the Fed’s release yesterday, Gold has made a really strong improvement, advancing to a price of $2,000.

In Asia, there is a reverse case than that in the U.S. The Australian and New Zealand dollars increased by 0.8% and 1%. The dollar/yen declined by 0.5% to 130.41.