- Interest Rate Hikes and Tapering Mentioned
- EUR/USD at New Lows
- Markets Sell-Off but Stable
The Federal Reserve and Chairman Jerome Powell concluded a two-day meeting with a press conference that was surprisingly direct in addressing the inflation concerns in the economy at the moment and how these will be handled. The resulting answers gave strength to the US Dollar forex market with tapering of bond purchases, and interest rate increases all mentioned. This brought the EUR/USD to its lowest point in 2 months and impacted other currencies around the world against the Dollar. On hearing the comments from the Fed Chief, markets on Wall Street did drop, though it was nowhere close to the sell-off that could have occurred in other circumstances if the news had not been delivered so clearly.
Double Rate Rise Planned for 2023
Part of the core message to come from the Fed meeting was that interest rates would indeed rise. This is not something set to happen in the short term and is an event that most in forex trading already saw as inevitable. These increases in the interest rate are penciled in for 2023. While none had previously been planned, there will now be two in the same year according to the latest projections.
Powell also mentioned that the inflation forecast for the year has been upgraded. This now stands at 3% and reflects a strongly rebounding economy where employment and growth projects were also moved up. While tapering of bond-buying will not start immediately, there was also room left to open this discussion.
Dollar Surges on Meeting Outcome
As had been widely anticipated, forex brokers took on a swell of demand for the US Dollar given the relatively hawkish outlook and analysis. This saw the Dollar index strengthen to just under 92 at certain times, marking a recent high for the index which has for significant periods been dropping below 90.
The Euro meanwhile was one currency to feel the pinch. It has dropped below 1.20 for the first time since April on the rising demand for the Greenback. The message in the Eurozone has remained quite the opposite as they continue to provide full support to their bond purchasing program and see any step back as premature.
Wall Street Drops but not Radically
Acknowledgment from the Fed that they need to adapt their plans and that inflation is running higher than expected could have caused chaos on Wall Street Thursday. This, however, has not been the case. While the markets did sell off in the wake of the comments, this has been more controlled than many may have expected under the circumstances.
Many appear to have already priced in a degree of hawkishness, and while all the major indices dipped slightly, they did not fall victim to a huge drop which had been the worry of some market analysts heading into the meeting period. Attention will now turn to US weekly jobless claims which are due.