Investors Digest of The Fed’s Decisions Sank The Dollar

The dollar fell in Asia on Thursday morning as investors digested the U.S. Federal Reserve’s announcement of a 75-basis-point interest rate hike.

The dollar index (DXY) measures the dollar’s value against a basket of other currencies. By 12:57 a.m. ET DXY rose 0.15 percent to 104.780. (4:57 AM GMT). The USD/JPY exchange rate increased by 0.42 percent to 134.30. On Friday, the Bank of Japan will announce its policy choices. The Australian dollar rose 0.15 percent to 0.7013, while the New Zealand dollar rose 0.14 percent to 0.6293. The USD/CNY exchange rate declined 0.18 percent to 6.7015, while the GBP/USD exchange rate dropped 0.24 percent to 1.2147.

Should We Prepare for a Hawkish Rate Hike?

After the U.S. consumer price index rose 8.6% year on year in May, the highest since 1994, the Federal Reserve raised interest rates by 75 basis points on Wednesday to tame inflation. Jerome Powell, the Fed’s chairman, explained that the central bank would raise interest rates again in July. Still, today’s 75 basis-point increase is an unusually large one, and he does not expect moves of this size to continue.

Peter Yi, director of short-duration fixed income and head of credit research at Northern Trust Asset Management, explained that it’s clear that the Fed will do whatever it takes to reduce inflation forcefully. The terminal rate will be closer to 4%, if not higher.

The Federal Reserve is raising the interest rates to keep inflation in check. The Fed also announced that it would begin shrinking its balance sheet by $47.5 billion per month on June 1 and gradually increase to $95 billion in September. Investors are now waiting for the Bank of England’s (BOE) policy decisions, which are expected later today. On the data front, the United States will release housing starts and initial jobless claims later in the day.