By Ambar Warrick
Investment.com – The US dollar rallied to a fresh 20-year high against a basket of currencies on Thursday, extending gains after the Federal Reserve raised interest rates and delivered a more hawkish tone than expected. in the most recent meeting.
The gain was as much as 1% to 111.47, the highest level since June 2002, while it increased 0.3% to 111,427. Both indexes rose on Wednesday following the Fed’s decision. 10 years rose to the highest level in 11 years.
The Fed rose 75 basis points on Wednesday, as expected. Chairman Jerome Powell said that the bank will continue to raise interest rates at low levels, even risking pressure on economic growth and the labor market, as it struggles to contain inflation.
The hawkish comments bolstered expectations to end the year 4% higher – the highest in more than 14 years.
The central bank also intends to keep rates higher for longer, with cuts only starting in 2024. Inflation is expected to remain above the Fed’s 2% target for at least. next two years, the bank forecast on Wednesday. It will also accelerate the reduction of its balance sheet in the coming months.
“The Fed wants to convey the message that inflation will remain above previous projections and that the policy rate could be as high as 4.60% by the end of 2023. Conceivably this undermines the ideas of” swings. The Fed’s “pivot” is still further away and sees the forex market biased towards deceleration and recession. This book actually favors the dollar over cyclical currencies,” analysts at ING wrote in a note.
Most of the risk-oriented currencies fell against the dollar on Thursday, while the euro fell further against the dollar.
The greenback also received support from increased safe-haven demand, on signs that the Russia-Ukraine conflict is likely to escalate.
Russian President Valdimir Putin signed a decree calling for partial mobilization of the country’s military, and threatened to use nuclear force.