After the Federal Reserve meeting on Thursday, the dollar went up by a lot.
Overnight, it raised interest rates by a half of a percentage point, which most people expected. Its policymakers expected to raise rates again and keep them high for longer than they had hoped before.
Fed Chair Jerome Powell said that rates were likely to peak above 5%, which showed that the Federal Open Market Committee was determined to keep inflation in check even though there was a chance of a recession.
Related: Asian stocks fall along with the dollar because the Fed is becoming more aggressive and China’s COVID is worried.
The euro went down by 0.2% to $1.0651, and the pound went down by 0.4% to $1.2386.
The kiwi fell 0.3% to $0.6440, and the dollar rose 0.1% to 135.705 against the Japanese yen.
Vishnu Varathan, head of economics and strategy at Mizuho Bank, said, “A nearly unchanged FOMC statement raised hawkish flags because the language about tightening was not toned down in any way.”
“What this means is that the Fed isn’t just pointing to a higher peak; it’s also emphasising that rates will stay low for longer.”
The index of the U.S. dollar against a group of other currencies went up by 0.2% to 103.89. But it was still stuck near a six-month low it hit the day before, which showed that the market wasn’t sure if the Fed would really raise rates that high.
Fed Funds Futures show that the markets think U.S. interest rates will peak at just under 5% in May 2019, which is lower than what the Fed has said.
“The Fed doesn’t want financial conditions to get better, but investors are saying more and more, ‘We hear you, we know what you want, but we don’t believe you,’ ” said Christian Hoffmann, portfolio manager and managing director at Thornburg Investment Management in Santa Fe, New Mexico.
Market scepticism was also fueled by the belief that U.S. inflation has likely reached its peak.
This week, data showed that U.S. consumer prices rose less than expected for the second month in a row in November, with underlying consumer prices rising by the least amount in 15 months.
China’s economy lost more steam in November, according to data released on Thursday. Factory output slowed and retail sales kept falling, both of which were worse than expected and their worst numbers in six months. The economy was hurt by rising COVID-19 cases and widespread virus restrictions, which were lifted last week.
The Aussie fell by 0.55% to $0.6826. It is often used as a liquid substitute for the yuan. Last, the Chinese offshore yuan was worth 0.3% less per dollar, or 6.9643 yuan.
The markets are now paying attention to what the Bank of England and the European Central Bank (ECB) will do with interest rates on Thursday. Both central banks are expected to raise rates by 50 basis points.
Related: Asian stocks decline, and the dollar strengthens ahead of a central bank rate hike.
“The Bank of England and the ECB have a lot of problems to deal with.” I think that their economies will have a hard time next year “Jarrod Kerr, who is the head economist at Kiwibank, said this. “They need to be more careful about their plans and the weaker economies in general.”