The US dollar was flat one day after the Federal Reserve followed through on a widely expected interest rate increase. The greenback surged after the Fed penciled in additional rate hike potentially as early as October or December, but the buck was little changed during the Thursday trading session.
The US Dollar Index (DXY), a gauge of the buck against a weighted basket of currencies, was unchanged at 100.24 at 18:11 GMT on Thursday on the US ICE Futures exchange. The index is poised for a weekly gain of at least 1%, bringing its year-to-date increase to almost 2%.
At the end of its two-day Federal Open Market Committee (FOMC) policy meeting, the central bank pulled the trigger on a quarter-point increase to the benchmark federal funds rate, the first hike in more than three years.
According to the Summary of Economic Projections, a quarterly Fed outlook for policy and the economy, the median policy rate is expected to end the year at 4.1%, suggesting another hike could be in store.
“Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little,” the Fed said in a post-meeting statement.
“Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability.”
While US stocks plummeted shortly after Chairman Kevin Warsh’s press conference, they rallied the next day across the board. US Treasury yields, meanwhile, were down.
The benchmark ten-year Treasury bond yield erased six basis points, sliding below 4.95%. The 30-year yield also tumbled more than six basis points to 5.29%. The two-year Treasury yield, which is generally sensitive to Fed policy expectations, declined to 4.68%.
“I think that the dollar moves along with US interest rates right now,” said Marc Chandler, chief market strategist at Bannockburn Forex, according to CNBC. “The pendulum of sentiment has swung very far.”
Actions among the major central banks have been mixed so far.
The European Central Bank (ECB) lowered its three key policy interest rates by a quarter-point. The Bank of England (BoE) left interest rates unchanged. The Bank of Japan will be the next institution that investors will focus on, with traders pricing in a rate hike.
The USD/CAD currency pair was unchanged at 1.3990. The EUR/USD rose 0.12% to 1.1478, from an opening of 1.146.