US Dollar Falls after Fed Issues Different View

Wednesday trading witnessed the US dollar sliding, falling 0.2 percent to 108.84 Japanese yen. The euro surged 0.7 percent against the US dollar to $1.1978. According to the report posted online by financial news, commentary, and data source Yahoo! Finance, the US dollar’s falling action during the middle of the week comes after the US Federal Reserve System’s remarks.

The Fed’s comments impact the US dollar and other foreign currencies significantly. We find this latest development in foreign exchange worth monitoring. The central bank cited that it does not anticipate increasing interest rates through all of 2023. It held interest rates steady. Additionally, the Fed said that it expects a fast jump in US inflation and economic growth this year as the coronavirus or COVID-19 crisis winds down.

The US central bank promised to keep its target interest rate almost zero for the years to come. The Fed’s statement is contrary to market expectations. The eurodollar futures market made a different suggestion before the Fed statement, nearly fully pricing a rate hike by December next year and three increases in 2023.

Following the central bank’s statement, eurodollar futures pared back wagers on an interest rate hike by December 2022. It has priced in so far a 90-percent probability of tightening by March 2023 and merely two hikes for the entirety of that year.

Furthermore, the improvement in the central bank’s economic outlook did not modify policymakers’ expectations for interest rates immediately, but the opinion’s weight did change. Seven of 18 government officials now anticipate raising interest rates in 2023, compared to merely five in December.

With these happenings in the US central bank, the dollar index plummeted 0.5 percent to 91.44 following the Fed’s issuance of its viewpoints. The US Federal Reserve System is an influential institution. At times, its views on interest rate hikes may and may not favor market analysts, traders, and so forth.

In recent trading sessions, we can remember that the Fed caused increased expectations that it might tighten interest rates earlier than thought, on predictions of a more-rapid-than-expected economic recovery. 

The result of this scenario was the US dollar reversing its slide on a surge in US Treasury yields. We suggest utilizing the Fed’s statement as our guide in forex. Its views are based on the current mood and developments happening in the United States and worldwide. 

For safety, we advise our forex enthusiasts to hold on to their US dollar reserves. We also recommend monitoring the events in the foreign exchange markets daily and performing self-studying using the various resources online to understand the developments relating to the US dollar and the Fed.

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