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FOREX-Dollar slightly lower after Fed hikes by 75 basis points

FOREX-Dollar slightly lower after Fed hikes by 75 basis points

Reuters · 07/27/2022 14:34
FOREX-Dollar slightly lower after Fed hikes by 75 basis points

Updates with Fed statement

By Chuck Mikolajczak

- The dollar was slightly lower on Wednesday against a basket of major currencies after the U.S. Federal Reserve raised interest rates by 75 basis points, as was widely anticipated, but signs of a softening economy.

The greenback initially moved higher after the statement but quickly reversed course to trade just below the unchanged mark on the session.

The central bank raised rates by three-quarters of a percentage point for the second straight meeting as it attempts to reign in inflation, but that while the labor market remains strong, other economic indicators have softened.

"You certainly can view the policy statement as hawkish but it is pretty consistent with what they have been saying for the last couple of meetings – they are going to continue to hike - estimates had them going into restrictive territory, they are at and they continue to think they are going to to go into restrictive territory," said Marvin Loh, senior global market strategist at State Street in Boston.

"Theoretically, the dollar should be stronger in an environment where it is hawkish but it was as expected and we have had a lot of movement in the dollar so far this month."

Comments from Fed Chair Jerome Powell will be closely monitored to gauge if the Fed will maintain an aggressive policy stance in the face of weakening economic data.

The dollar index =USD fell 0.093% to 107.020, with the euro EUR= up 0.29% to $1.0143.

Bets on oversized rate hikes helped push the dollar index =USD to a two-decade high earlier this month at 109.29, but the greenback has eased lately as economic data has hinted at a possible recession.

But on Wednesday, data showed the U.S. trade deficit sharply in June as exports jumped, while orders for -defense capital goods excluding aircraft, seen as a proxy for business spending plans, rose 0.5% last month, potentially soothing some concerns about the economy.

The euro recouped some of the prior session's decline, which was the biggest one-day percentage drop for the currency in two weeks, but fears of a European recession remain high as Russia further slowed gas supplies to Europe through the Nord Stream 1 pipeline.

The gas crisis, along with political woes in Italy, will push the region into a mild recession by early year and limit the European Central Bank's path of interest rate hikes, analysts at JPMorgan said.

The Japanese yen JPY= weakened 0.07% versus the greenback to 137.04 per dollar, while Sterling GBP= was last trading at $1.2066, up 0.34% on the day.

In cryptocurrencies, bitcoin BTC= rose 5.27% to $22,083.04.

(Reporting by Chuck Mikolajczak; Editing by Kirsten Donovan)

((charles.mikolajczak@tr.com; @ChuckMik;))