The Federal Reserve (Fed) announced on Wednesday (4th) that it would raise interest rates by 2 yards and start quantitative tightening (QT) from June. Chairman Powell emphasized in the post-meeting press conference that it will actively suppress inflation, but downplayed the next rate hike. The possibility of 3 yards caused the dollar to fall sharply against a basket of major currencies.
The ICE U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, fell to 102.62 in late New York trading after hitting a one-week low of 102.48 during the session.
Powell said in a news conference that the Fed is not actively considering a 75 basis point (3 yards) rate hike, and the next few meetings will consider a similar increase to May, which is a 50 basis point (2 yards).
Mazen Issa, senior currency strategist at TD Securities in New York, said: “The market was pricing in a 50% chance of a 75 basis point rate hike by July, so everyone was concerned about whether a three-point rate hike was an option on the table, but Powell basically against that.”
In response to QT, the Fed said it would shrink its balance sheet by $47.5 billion per month (including $30 billion in Treasuries and $17.5 billion in mortgage-backed securities) in the three months beginning in June, and then by as much as $950 in September. One hundred million U.S. dollars.
In addition, the United States released the ADP employment report on Wednesday, known as the “small non-farm”, which showed that private employers hired 247,000 people in April, the least in two years, due to lack of work and rising costs. The US Labor Department will release its April nonfarm payrolls report on Friday.
Investors are assessing whether DXY has room for further upside after last week’s rally to a 20-year high, as much of the Fed’s hawkish stance is already priced in.
But the Fed is still far more hawkish than other major countries. Europe, for example, is also grappling with weak economic growth and disruptions to energy supplies following sanctions on Russian oil.
The euro climbed 0.82% to $1.0606.
Investors have continued to pour funds into safe-haven assets recently to provide support for the dollar as investors worry that China’s epidemic prevention blockade will affect global economic growth and exacerbate supply chain problems.
Beijing closed many subway stations and bus routes on Wednesday, and many public places still imposed epidemic prevention restrictions, hoping to prevent Beijing from following the footsteps of more than 10 million people in Shanghai, which have been locked down for more than a month.
The Australian dollar had outstanding performance for two days in a row, appreciating 2.03% to US$0.7241, continuing to gain momentum from the Reserve Bank of Australia (RBA, the central bank’s decision to unexpectedly raise interest rates sharply). Australia started raising interest rates for the first time in 10 years on Tuesday, up 25 basis points (1 yard) to 0.35%, beating market expectations for an increase of 15 basis points.
As of Thursday (5th) at about 6:00 Taiwan time Price:
- The dollar index was at 102.5124. -0.92%
- The euro against the US dollar (EUR/USD) was quoted at $1.0623 per euro. +0.96%
- The British pound against the US dollar (GBP/USD) exchange rate was quoted at 1 pound to 1.2632 US dollars. +1.10%
- The Australian dollar against the US dollar (AUD/USD) was quoted at 1 Australian dollar to US$0.7253. +2.21%
- The US dollar against the Canadian dollar (USD/CAD) was quoted at 1.2742 Canadian dollars for 1 US dollar. -0.74%
- The U.S. dollar against the Japanese yen (USD/JPY) was quoted at 129.18 yen per dollar. -0.71%
