FOREX-Dollar Plunges as Fed Hikes Rates, Signals Slowing Economy

Band Saqib Iqbal Ahmed

NEW YORK, June 15 (Reuters)

The dollar slid against a basket of currencies on Wednesday, after the Federal Reserve raised interest rates by 75 basis points in a historic move to fight inflation and forecast a slowing economy and rising unemployment In the coming months.

The rate hike was the biggest by the US central bank since 1994 and came after recent data showed little progress in its battle against inflation.

U.S. central bank officials also signaled a faster trajectory of rising borrowing costs ahead, aligning monetary policy more closely with a rapid shift this week in financial market views on what it will take to control price pressures. .

The dollar largely succumbed to the buy the rumour/sell the fact dynamic following the Fed’s decision,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Against a basket of currencies =USDthe dollar was 0.50% less than 104.76after rising to 105.79its strongest since December 2002, in the immediate aftermath of the Fed’s decision.

Karl Schamotta, chief market strategist at corporate payments firm Corpay, pointed to remarks by Fed Chairman Jerome Powell at the press conference following the rate decision, where he said that ‘He doesn’t expect 75 basis point rallies to be common, as part of the reason the dollar sold off.

“Ultimately, Powell failed to exceed market expectations,” Schamotta said.

“Traders are piling into central bank-issued currencies that are likely to follow today’s Fed hike with their own aggressive moves,” he said.

The greenback had weakened against the euro earlier in the session following news of a surprise European Central Bank meeting, which some traders hoped would resolve the risk of fragmentation in the region.

The so-called risk of fragmentation refers to the fear that the ECB’s monetary policy actions will affect the 19 countries that make up the euro zone differently, with some countries seeing a significant rise in bond yields disconnected from economic fundamentals.

The ECB will distort the reinvestment of maturing debt to help more indebted members and design a new instrument to stop fragmentation, it said on Wednesday.

“The ECB meeting provided very little additional information compared to last week’s policy statement,” said Simon Harvey, head of currency analysis at Monex Europe.

With renewed selling pressure on the dollar, the euro appreciated 0.36% to $1.0452.

Rising US rates versus Japanese yields at lows weighed on the yen JPY=EBSwhich hit a fresh 24-year low of 135.60 per dollar early in the session before erasing losses to trade around 1.3% against the greenback.

The pound on Wednesday recovered from its lowest level against the dollar since March 2020, rising 1.71% to $1.2202 but the reprieve may prove temporary with slowing UK economic growth and a potential trade dispute with the European Union weighing on the currency.

In cryptocurrencies, bitcoin BTC= slipped to a new 18-month low of $20,076.05before cutting losses to trade roughly flat at $22,149.15, dragging smaller tokens with it and worsening a market meltdown sparked by crypto lender Celsius this week by freezing customer withdrawals.

Global exchange rates

(Report by Saqib Iqbal Ahmed edited by Nick Zieminski and Jonathan Oatis)

(([email protected]; @SaqibReports; +1 646 223 6054; Reuters Messaging: [email protected]))

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