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Dollar jumps after Fed pulls interest rate hikes into 2023

EconomyJun 16, 2021 03:13PM ET
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© Reuters. FILE PHOTO: A U.S. dollar note is seen in front of a stock graph in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration/File Photo

By Saqib Iqbal Ahmed and Elizabeth Howcroft

NEW YORK (Reuters) -The dollar jumped to a near six-week high on Wednesday after the Federal Reserve brought forward its projections for the first post-pandemic interest rate hikes into 2023, citing an improved health situation and dropping a long-standing reference that the crisis was weighing on the economy.

The dollar index, which tracks the greenback against six major currencies, was up 0.63% at 91.103, its highest since May 6.

A majority of 11 Fed officials penciled in at least two quarter-point interest rate increases for 2023, even as officials in their statement pledged to keep policy supportive for now to encourage an ongoing jobs recovery.

The projections showed the outlook for inflation jumping this year, though the price increases were still described as "transitory." Overall economic growth is expected to hit 7%.

"The interesting thing is that the Fed has gone beyond simply acknowledging that inflation is rising and that the U.S. economy has a lot of momentum, and it has essentially shifted to a much more hawkish stance in this set of projections," said Karl Schamotta, chief market strategist at Cambridge Global Payments (NYSE:GPN) in Toronto.

Against the Japanese yen, the dollar rose 0.39% to 110.49 yen, its highest since April 6.

The dollar, which slumped through much of 2020, staged a rebound earlier this year, but that relief rally appeared to run out of steam through May as investors remained convinced that the Fed will keep interest rates lower for longer as it seeks to support the economy.

While the Fed's new language does not mean a change in policy is imminent it does provide more support for the greenback, analysts said.

"I think we're back to talking about a mild rally in the U.S. dollar and the data becoming very important over the summer period prior to Jackson Hole and September's meeting," said Simon Harvey, senior FX market analyst at Monex Europe.

Risk-sensitive currencies logged a sharp reversal following the Fed announcement, with the New Zealand dollar down 0.98% at $0.7049 and the Australian dollar - which is seen as a proxy for risk appetite - up 0.95% at $0.7612.

Sterling, which had strengthened against the dollar on Wednesday after data showed British inflation unexpectedly jumped above the Bank of England's 2% target in May, gave up those gains to trade down 0.49%.

Meanwhile, bitcoin's recent rally appeared to run out of steam, as the world's largest cryptocurrency fell 4.34% to $38,430.03.

Dollar jumps after Fed pulls interest rate hikes into 2023
 

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Comments (7)
Joe Messeri
Joe Messeri Jun 16, 2021 4:49PM ET
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You’ll see home loans starting at 6% in less than 6 years
Viscosa Crown
Viscosa Crown Jun 16, 2021 9:43AM ET
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I wish not to know much about the Feds and their theory all I wanna hear is where can I invest my money today, do I buy or sell???
Chit Nay
Chit Nay Jun 16, 2021 12:05AM ET
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$90.213 booning
Gene Kret
Gene Kret Jun 15, 2021 11:26PM ET
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Biden will make surprise change in federal stand on pot by rolling back schedule 1 control substance criteria and allow states to generate revenue.
Kaveh Sun
Kaveh Sun Jun 15, 2021 11:15PM ET
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Price is up but spending is down; translation : inflation
Jouni Matero
Jouni Matero Jun 15, 2021 11:15PM ET
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But it's just transitory, according to FED. First they denied inflation and now they admit it but it's just transitory and when time passes bit further, they say it's not transitory but anyway under control, finally it's too late.
Joel Schwartz
Joel Schwartz Jun 15, 2021 10:43PM ET
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DXY $90.5 is bond, yo
Mario tragik
Mario tragik Jun 15, 2021 9:43PM ET
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blah blah, there will be no change in the Fed stand. New all time highs soon.
Jouni Matero
Jouni Matero Jun 15, 2021 9:43PM ET
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Unfortunately that's probably the outcome. After a short time however Michael J Burry's latest prediction from monday comes alive and there will be blood.
 
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