Dollar Rises After Fed Rate Decision, But Fails To Hold Gains

(RTTNews) - The U.S. dollar pared early losses and briefly climbed higher Wednesday afternoon after the Federal Reserve announced a sharp 75-basis point hike in interest rates, but retreated subsequently and shed ground against some of its major counterparts.

Although it was expected that the Fed will hike interest rates by 50 basis points, a section of analysts forecast a 75-basis point hike. Now that the sharp hike has happened the dollar is paring gains.

The Fed revealed that it has decided to raise the target rate for the federal funds rate by 75 basis points to 1.50 to 1.75%, marking the biggest rate hike since 1994.

The move comes as a recent report from the Labor Department showed consumer price inflation at the fastest annual rate in forty years.

Citing its goals of maximum employment and inflation at a rate of 2% over the longer run, the Fed also indicated that further rate hikes are likely to be appropriate.

In his post-meeting press conference, Fed Chair Jerome Powell indicated the central bank could raise interest rates by another 75 basis points at its next meeting in late July.

The Fed also said it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.

Saying that the overall economic activity appears to have picked up after edging down in the first quarter, the central bank described recent jobs gains as "robust" and noted the unemployment rate has remained low.

On the U.S. economic front, the Commerce Department released a report that showed retail sales fell by 0.3% in May after climbing by a downwardly revised 0.7% in April. Economists had expected retail sales to edge up by 0.2% compared to the 0.9% increase originally reported for the previous month.

A separate report released by the Labor Department showed U.S. import prices climbed by 0.6% in May after rising by a revised 0.4% in April. Economists had expected import prices to jump by 1.1% compared to the unchanged reading originally reported for the previous month.

Meanwhile, the report showed export prices surged by 2.8% in May following a 0.8% increase in April. Export prices were expected to shoot up by 1.3%.

The Federal Reserve Bank of New York also released a report showing regional manufacturing activity was little changed in the month of June.

Another report from the National Association of Home Builders showed homebuilder confidence fell to its lowest level since June 2020.

The dollar index, which fell to 104.66 in the European session, rose to 105.79 after the Fed announcement, but dropped to 104.71 as the session progressed, netting a loss of nearly 0.8%.

Against the Euro, the dollar slipped to $1.0456, after having firmed to $1.0418 soon after the rate hike announcement.

The dollar is trading at $1.2181 against Pound Sterling, weakening from $1.1999.

Against the Japanese currency, the dollar weakened, fetching 133.66 yen a unit, compared to 135.47 yen on Tuesday.

Against the Aussie, the dollar dropped to 0.7005 from 0.6872. The Swiss franc has firmed to 0.9938 a dollar from 1.0015. The Loonie is stronger at 1.2899 a dollar, gaining more than 0.5%.