March 17, 2022: The dollar fell Wednesday after the US Federal Reserve shifted to perilous monetary policy, but without bringing a bigger surprise that may have contributed to the weeks-long momentum.
The dollar index, which had risen 3% since the war between Russia and Ukraine began on Feb. 24 and 10% since May, fell a staggering 0.6% on Wednesday as traders parsed the Fed’s statements after a two-day meeting.
“There were no additional aggressive surprises,” said Erik Bregar of Silver Gold Bull Inc, adding that traders seemed to expect too much more from the Fed. “That explains why some of these aggressive bets are being scaled back a bit,” he said.
The dollar lost value against the euro and the British pound, both of which had risen earlier in the day in hopes of a compromise in peace talks with Russia and Ukraine.
The euro and the pound both gained 0.7%, while the euro traded at $1.1032.
The Fed raised interest rates by a percentage point in the expected quarter and forecast that its key rate would be between 1.75% and 2% by the end of this year and at 2.8% next year.
Strategists at Wells Fargo Securities called the Fed’s comments in a note to clients “very precarious” and said it should be good for the dollar going forward.
The dollar index’s decline was surprising and may reflect disappointment that the Fed’s rhetoric wasn’t more aggressive, they said.
The Fed forecast the equivalent of a quarter of a percentage point rate hike at each of its six remaining policy meetings this year, but that was in line with market expectations for interest rates.
US 10-year Treasury yields reached 2.2% and 2-year yields rose to 1%, flattening the yield curve.
The Bank of England is meeting on Thursday and the markets expect it to raise interest rates by another quarter point.
The Bank of Japan is expected to keep ultra-loose policy settings Friday.
Against the Japanese yen, the dollar gained 0.4%, reaching 119.13 yen during the day, its highest point in more than five years.
The commodity sensitive Australian dollar added 1.3% to $0.7288.
Bitcoin was up 5% on the last day to $41,186.
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