The dollar index dropped sharply after Powell’s comments, falling to a one-week low of 102.48
The dollar fell to a one-week low against a basket of currencies on Wednesday after Federal Reserve Chairman Jerome Powell played down the prospect of a 75 basis point rate hike, even as he said the U.S. central bank will act aggressively to stamp out inflation.
Powell said in a press conference following the Fed’s policy statement that the U.S. central bank is not actively considering a 75 basis point increase, but that additional 50 basis point jumps should be on the table for the next couple of meetings.
It came after the Fed raised its benchmark overnight interest rate by 50 basis points, the biggest increase in 22 years, in a widely expected decision.
The market was pricing in essentially a 50/50 chance that you see a 75 basis point hike by July, between June and July, and so I think the most important takeaway here that I think the market was really fixated on, was whether or not a 75 basis point hike is on the table, and he (Powell) basically pushed back on that, said Mazen Issa, senior fx strategist at TD Securities in New York.
The dollar index dropped sharply after Powell’s comments, falling to a one-week low of 102.48, before retracing back to last be at 102.62, down 0.76% on the day.
The U.S. central bank also said that its $9 trillion balance sheet would be allowed to decline by $47.5 billion per month in June, July and August and the reduction would increase to as much as $95 billion per month in September.
The euro rose to $1.0606, up 0.82% on the day, and is up from $1.0470 on Thursday, which was the lowest since January 2017.
The Aussie dollar outperformed for the second day, after the Reserve Bank of Australia on Tuesday raised its cash rate by a surprisingly large 25 basis points to 0.35%, the first hike in over a decade, and flagged more to come as it pulls down the curtain on its massive pandemic stimulus. The Aussie gained 2.03% to $0.7241.