The U.S. dollar continued rising on Thursday, hitting its highest level in more than two months. The U.S. Federal Reserve hinted that it would raise interest rates, along with ending emergency bond-buying sooner than expected. While some investors thought that it would happen, the agency’s statement still caught the market by surprise.
On Wednesday, Fed officials stated that they would work with an accelerated timetable for rate increases, beginning talks on ending emergency bond-buying. They also noted that the coronavirus pandemic was no longer the main constraint on U.S. commerce.
The Fed plans at least two quarter-point rate increases for 2023. However, they also added that the agency would keep policy supportive of aiding with a labor market recovery. On Thursday, U.S. Treasury yields soared by the most since early March, while equities tumbled down.
Meanwhile, the greenback traded steady during Thursday’s Asian session after hitting record highs during the previous session. The dollar index climbed up by 0.5% on the day at 91.825, reaching its highest level since April 13.
On the other hand, the euro plummeted against the dollar, with the euro-dollar pair exchanging hands at a two-month low of $1.19295.
What Do the Analysts Say?
Elsa Lignos, global head of FX strategy at RBC Capital Markets, noted that USD would likely hold on to its gains. However, in order to build on those gains, the market needs some further positive data surprises.
Meanwhile, Deutsche Bank strategists stated that they decided to close their long euro-versus-dollar trade recommendation. The latter was based on the Fed being dovish. According to the bank, the agency is no longer willing to push back on market pricing. It is not as committed to its transitory inflation narrative.
The British pound and Canadian dollar also declined on Thursday. Both currencies plunged to a six-week low against the greenback.
The U.S. dollar soared by 1.2% against the Swedish crown, and it gained 0.8% at 0.9153 versus the Swiss franc, hitting a six-week high.