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USD eases off multi-year highs after Fed rate hike

Thursday 16 June, 2022

Daily Currency Update

The US Federal Reserve raised interest rates by 75 basis points on Wednesday as many expected. The dollar rose following the announcement but reversed and fell off multi-year highs shortly after, in keeping with the recent trend of selling in the aftermath of a rate hike. The statement showed the Fed adjusted its median estimates for rates into the end of the year to 3.375% meaning they anticipate only a further 150 basis point adjustment through the next 4 meetings. When coupled with comments from Fed Chair Jerome Powell wherein he suggested policymakers “do not expect moves of this size to be common” investors were prompted to downgrade aggressively hawkish estimates. The accompanying economic projections produced by the Fed showed that they expect the economy to slow throughout the year and for unemployment to tick higher. Many economists are now saying they expect a recession in the world’s largest economy as we near 2023. which would actually assist controlling price pressures. However, Powell dismissed this theory when raised in the press conference following the statement. The US Dollar Index was down 0.60% trading at 104.53 at the time of writing.  

Key Movers

The pound rose after the The Bank of England raised rates by 25 basis points on Thursday, bucking some expectations that the central bank would be more aggressive with a 50-basis-point hike. The BoE faces a tricky balancing act as recent data has pointed to an economy that is flat lining with unemployment beginning to tick higher. As a result, policymakers need to try to find a way of controlling price rises without pushing the economy into recession. GBPUSD was up 0.62% trading at 1.2245 at the time of writing. The euro poked its head above US$1.05 after the European Central Bank called an emergency meeting to discuss market conditions and the sharp correction in peripheral bond spreads after Greek and Italian bonds plunged 45 and 46 basis points respectively. The ECB elected to employ tools and act against defragmentation risks as it unwinds its QE program and begins raising interest rates. The announcement helped bolster risk demand, but the euro remained little changed against the dollar on Thursday amid USD softness. EURUSD was up 0.13% at 1.0458 at the time of writing.  

Expected Ranges

  • EUR/USD: 1.0374 - 1.0467 ▲
  • GBP/USD: 1.2047 - 1.2274 ▲
  • AUD/USD: 0.6928 - 0.703 ▼
  • USD/CAD: 1.2865 - 1.2992 ▲