US Fed hikes interest rates for the first time since 2018

USD

The dollar fell against both the euro and Sterling on Wednesday evening despite the Federal Reserve’s decision to hike interest rates in the US for the first time since 2018.

Initially, the dollar rallied as the Fed announced that the interest rate would be raised by 0.25% to 0.50% whilst signalling that six further hikes would likely be required this year to curb a forty year high inflation. Policymakers voted 8-1 in favour of hiking the main lending rate to 0.5% with St Louis Fed President James Bullard dissenting in favour of an immediate hike to 0.75%.

According to the Fed’s dot plot, the median projection is for rates to finish the year higher than expected at 1.9%. A rise to 2.8% in 2023 is estimated, but Fed officials anticipate the projection to remain at 2.8% for 2024.

Despite the initial rally, the dollar reversed many of its gains after the press conference that followed the Fed’s policy announcement. Fed Chair Jerome Powell added a caveat that rate hikes would largely depend on inflation and economic data. Powell also stated that whilst the Russian invasion of Ukraine is likely to cause inflationary pressures in the US in the short term, the economic impact of the war remain highly uncertain.

Key announcements

12:00 – GBP – Bank of England interest rate decision