The Fed lifts rates by a quarter point as banking turmoil complicates inflation fight

Dollar falls after Fed raises rates, indicates one more hike ahead

The dollar slid on Wednesday after the U.S. Federal Reserve raised its key rate by a quarter of a percentage point, as widely expected, and pointed to just one more rate hike this year.

The Fed projected at least one additional interest rate increase of 25 basis points by the end of 2023, but suggested that could represent at least an initial stopping point for the rate hikes.

The dollar index DXY last fell 0.63% to 102.500, with the euro

EURUSD up 0.87% to $1.0861.

The dollar fell 0.82% against the Japanese yen USDJPY, while Sterling GBPUSD was last trading at $1.2268, up 0.41% on the day.

In a key shift driven by the sudden failures this month of Silicon Valley Bank (SVB) and Signature Bank, the Fed’s latest policy statement no longer says that “ongoing increases” in rates will likely be appropriate. That language had been in every policy statement since the March 16, 2022 decision to start the rate-hiking cycle.

Markets had projected a quarter-point rise in U.S. rates, but investors were also paying close attention to Fed Chair Jerome Powell’s comments about the crisis that has rattled global banks this month.

“Our banking system is sound and resilient with strong capital and liquidity. We will continue to closely monitor conditions of the banking system and are prepared to use all of our tools as needed to keep it safe and sound,” Powell said at the news conference following the Fed’s rate hike announcement.

The Fed, together with other major central banks, has made provisions to grease the wheels of the financial system, after the failure of several smaller U.S. lenders and the implosion of Credit Suisse at the weekend unleashed huge market volatility and a rout in banking stocks and bonds in particular.

The Fed’s “dovish hike” should mean a lower dollar in the coming weeks and days, provided that bank liquidity issues remain at bay, Wells Fargo analysts wrote in a research note.

GBPUSD rose after data showed UK inflation came in much hotter than expected in February, which puts Bank of England policymakers in a tough position when they meet on Thursday.

AUDUSD rose 0.29% versus the greenback to $0.669, while New Zealand’s kiwi

NZDUSD rose 0.57% versus the greenback to $0.623.

In cryptocurrencies, bitcoin BTCUSD last fell 2.5% to $27,488.00, after hitting a nine-month peak on Monday.


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