The dollar fell on Wednesday (December 14) after the US Federal Reserve (Fed) announced its decision to raise interest rates by half a percentage point as expected and said it would need to continue raising interest rates further.
The greenback in session 14/12 gained quite strongly right after the market opened for trading, but reversed down after Fed Chairman Jerome Powell raised many problems after the meeting. The Fed expects borrowing costs to rise by at least 75 basis points by the end of 2023 as unemployment rises and economic growth nears a halt.
The Dollar index – which compares the USD with a basket of 6 major US currencies – ended December 14 down 0.39% to 103,622. The Dollar Index has fallen 9% since hitting a 20-year high in September as expectations for US interest rates – already high to keep rising further boosting the dollar – begin to ease.
US stocks also fell after a volatile session as messages from the Fed led the market to predict that interest rates would maintain their upward momentum for a long time.
The Dow Jones Industrial Average ended down 142.29 points, or 0.42%, to 33,966.35, the S&P 500 lost 24.33 points, or 0.61%, to 3,995.32 and Nasdaq fell 85.93 points, or 0.76%, to 11,170.89.
All three major Wall Street averages are on track for their first annual declines since 2018 and their biggest annual percentage declines since the 2008 financial crisis.
The aggressive interest rate hikes by the world’s major central banks this year have raised concerns that the global economy could be pushed into recession and weighed on riskier assets like equities in the US this year.
Ahead of the December meeting, lower-than-expected US inflation data had some investors hoping that Mr. Powell would make dovish remarks in his post-meeting news conference. However, that was not the case in reality. In comments following his closing statement, Mr. Powell said it was too early to talk about a rate cut by the US central bank and that the Fed’s focus was on setting policy to bring inflation back to target 2% over time.
The Fed’s latest quarterly summary of economic projections shows that US central banks expect policy rates – currently between 4.25% and 4.5% – to stay at 5.1 % at the end of next year, up from 4.6% at the end of September, according to the median estimate of all 19 Fed policymakers.
“This is a set of messages that suggest the Fed still wants to tighten policy more than the market expects U.S monetary policymakers have dashed hopes for a sustained easing of conditions finance while maintaining the same language as before, saying that ‘continuous increase (interest rates)’ is necessary to put austerity on a sufficiently strong foundation to limit inflation,” Karl Schamotta, chief market strategist at Corpay.
“By raising the end-of-term rate forecast to 5.1% and avoiding a sharp drop in long-term rate expectations, Fed officials have not abandoned the message of ‘(interest rates) rising in the long run,” Corpay said ‘ has been stated for months”. “On balance, this suggests we’ll need to see more compelling evidence of easing inflationary pressures before the Fed ‘pivots’ in any way.”
For his part, Derek Halpenny, head of global research and markets at MUFG, said: “Our suspicion at this point is that Chairman Powell has lost his job in turning the movement around interest rate hikes and any of his rhetoric that interest rates will continue to rise rapidly is unlikely to gain much traction in the face of the recently released weak CPI.” And any strength in the US dollar on the back of statements that interest rates will continue to rise rapidly could be reversed quickly.”
The euro ended the session up 0.43% against the dollar to 1.0674 USD/EUR. Against the Japanese yen, the USD also fell 0.24% to 135.235 JPY/YSD. The pound also gained 0.54% against the dollar to $1.2429/GBP.
Annual inflation in the UK is currently still at 10.7%, down slightly from the 10.9% forecast but still very high for UK consumers.
The Russian ruble in the last session fell to nearly 64 RUB / USD, the lowest in 2 months, due to the impact of Western sanctions on Russian oil. Accordingly, RUB sometimes dropped to 63,925 RUB/USD, ending the session at 63.25 RUB.
The Chinese yuan also depreciated against the USD, down 0.2% to CNY 6,945/USD.
From now until the end of the week, currency traders will focus on the European Central Bank and Bank of England meetings – which are also forecast to raise interest rates by 50 basis points on Thursday, December 15th. The Swiss National Bank also meets on Thursday.
In the cryptocurrency market, Bitcoin in the past session surpassed the threshold of $ 1,800, at the end of the session on December 14 (ending at dawn on December 15, Vietnam time) there was a time when it reached $ 18,307, before cooling down and ended at $17,805.
Bitcoin price on December 14.
Gold prices fell slightly in the past session as the Fed signaled that interest rates would continue to rise in the new year and said it was too early to consider cutting rates.
Spot gold ended the session down 0.1% at $1,808.09 an ounce, at one point falling 0.8% shortly after the Fed’s announcement of an expected 0.5 percentage point increase in interest rates widely and forecast that borrowing costs will increase by at least 75 basis points by the end of 2023.
US gold futures for February 2023 also fell 0.4% to 1,818.70 USD.
Gold prices fell despite a weaker dollar because the Fed clearly has no intention of making a rate cut in 2023.
References: Reuters, Coindesk