The US dollar jumped to its highest level since July 2020 against major currencies today following being influenced by the Fed’s behavior and speculation that the Fed will raise interest rates at a higher rate in the coming months.
Almost a day after the Fed expressed readiness to start raising rates in March to curb inflation, currency markets reacted to the statement.
The US dollar index, which measures the US dollar against six major currencies, traded 0.80% stronger at 97.275.
The Fed in the early hours of Thursday morning indicated it was likely to raise rates in March, as widely expected, and reaffirmed plans to end its bond purchases in the same month before significantly reducing its asset holdings.
In a follow -up press conference, Chairman Jerome Powell insisted that no decision had been made, but in response to the question of whether the central bank would consider a 50 basis point increase, he did not rule out the possibility.
On the other hand, the Department of Commerce reports that the U.S. economy grew by 6.9% in the last quarter of 2021. Overall in 2021, the U.S. economy grew 5.7% per year which is the best performance since 1984.
According to Jane Foley, head of currency strategy at Rabobank, "While the market has begun to anticipate rising interest rates, market players assume that the Fed may be more sensitive to the equity market, but in fact it is not."
On the other hand, the Euro depreciated 0.75% against the US dollar to a trading level of $ 1.1156, the lowest since June 2020. The US dollar also hit its highest level in more than a year against the New Zealand dollar. The same goes for the Australian currency.
