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US dollar rises after Fed’s hawkish rate pause


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The US dollar rose after the US Federal Reserve kept its interest rates in the current 5.25%-5.50% range on Wednesday night and chair, Jerome Powell, delivered his firm hawkish stance - higher for longer.

 

 Angela Barnes | Financial presenter/producer, London | Publication date: Thursday 21 September 2023 09:55

Updated quarterly projections show the central bank may still lift rates one more time this year to a peak 5.50%-5.75% range. Policymakers now see the fight against inflation lasting into 2026. IGTV’s Angela Barnes has more.

The Federal Reserve

The Federal Reserve announced that they would be keeping interest rates in the U.S. unchanged at a range of 5.25 to 5.50 percent. This decision had a big impact on the value of the U.S. dollar. One interesting thing to note is that Jerome Powell, who heads the Federal Reserve, took a firm stance on raising rates, which caused the value of the dollar to go up. The Federal Reserve also released their updated projections, which suggest that there may be one more rate hike this year, bringing the rate to a range of 5.50 to 5.75 percent.

U.S. inflation

They also predict a half percentage rate cut in 2020-24, which is different from their previous expectation of a one percent cut next year. The Fed officials believe that they can continue to fight inflation until 2026 without causing any harm to the economy. As a result of these announcements, bond yields, which are the returns on bonds, increased. The two-year Treasury note even reached a level not seen in 17 years. This caused a decline in the equity markets, as investors moved their money into bonds.

The U.S. dollar

At the same time, the USD became stronger and reached a six-month high. This had an impact on the dollar-yen exchange rate, which reached its highest level in 2023. Overall, these developments indicate that the U.S. dollar is doing well and is expected to continue to strengthen. This is important for traders to keep an eye on, as it can impact the value of other currencies and international trade. It will be interesting to see how the markets react in the coming days.

 

 

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Analysts have noted a historical correlation between crypto prices and the stock market, particularly in relation to interest rate decisions. Post FOMC decision witness Bitcoin’s price showed little change drop to about 0.17% on the day while other crypto like the Bitget BGB recorded a mild gain. Crypto market analyst TXMC has warned of a potential recession in 2024 due to tight credit conditions, which could influence both stock and Bitcoin prices.

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