Dollar Soars as Fed Hikes Interest Rates

Dollar Soars as Fed Hikes Interest Rates


The dollar index which measures the greenback against a basket of major currencies rose to a one-week high of 94.59 following the Federal Open Market Committee interest rate decision. The Fed raised interest rates by 25 basis points for the third time this year and signaled a fourth rate hike in December. The economic projections were adjusted. The Fed expects the GDP to rise to 3.1% during 2018 versus a prior forecast of 2.8%, the unemployment rate to settle at 3.5% till 2020, and the PCE inflation to steady at 2.1%. The Fed Chairman Jerome Powell had a press conference after the release of the decision. Powell said that the economy is strong and the overall growth outlook remains favorable as he doesn’t see clear headwinds other than trade spats. He added that the gradual rate hikes are helping to sustain the economy. The Fed removed “accommodative” from its statement which weighed on the dollar initially as it hints that the Fed is approaching neutral rate levels. However, Powell clarified that dropping accommodative doesn’t signal a change in policy, but it shows that the policy is moving in line with expectations. President Trump said later that he is not satisfied with higher interest rates, but they reflect the strong performance by the United States economy. The EURUSD tumbled to a one-week low of $1.1690, the GBPUSD fell to a low of $1.3118, and the AUDUSD traded at a low of $0.7220.


Wall Street lost earlier gains and settled lower following the rate decision. The Dow Jones Industrial Average lost 0.4% to 26385, the SPX500 fell 0.3% to 2905, and the Tech-heavy Nasdaq Composite Index dropped 0.2% to 7990.


The Reserve Bank of New Zealand kept interest rates unchanged at 1.75% as widely expected. The bank believes that the official cash rate could remain unchanged into 2020, and its next move could be up or down. The RBNZ stated that trade tensions could hurt the global economic growth. The NZDUSD tumbled to a low of $0.6633.


Gold prices failed to break out from the trading range following the Fed decision. The bullion rose to a high of $1202, then dropped to a four-day low of $1190, and finally settled at $1196. On the other hand, the silver ounce closed lower at $14.38.


Oil prices advanced despite the build-up in inventories. The Energy Information Administration reported that the weekly crude oil inventories rose by 1.852 million barrels to a total of 395.99 million barrels last week. Moreover, the EIA announced that the U.S. crude production hit a record of 11.1 million barrels per day during last week. However, prices remain supported by the looming U.S. sanctions on Iran and its effect on the market supply. During the Asian session, the West Texas Intermediate crude futures rose to $72.52 per barrel, and Brent futures traded near a four-year high at $82.30 per barrel.

Major Economic Events

GMT Country Event Expectation Previous
8:00 EU ECB Economic Bulletin    
12:30 US Core Durable Goods Orders (MoM) (Aug) 0% 0%
12:30 US GDP (QoQ) (Q2) 4% 4%
12:30 US Initial Jobless Claims 208 201
13:30 EU ECB President Draghi Speaks    
14:00 UK BoE Gov Carney Speaks    
14:00 US Pending Home Sales (MoM) (Aug) -0.2% -0.7%
20:30 US Fed Chair Powell Speaks    
21:45 CA BoC Gov Poloz Speaks    


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