US dollar index tumbles despite Fed rate hike

The US Dollar Index fell sharply, hitting the lowest in almost a month, following the decision of the Federal Reserve to raise the benchmark rate by 25bp. The move was expected by market participants. The updated projections and the tone of the statement weakened the greenback. 

The DXY fell 0.80% from the level it had before the statement. It bottomed at 100.30, the lowest since February 17. Near the end of the session, it was holding near the lows, headed toward the lowest close in a month. 

Today’s slide represents a resumption of the decline that started early in March from levels on top of 102.00. 

What now? Post fed analysis by Yohay Elam

Fed delivers, but no support to the USD

The greenback dropped sharply across the board despite the Fed rose the interest rate for the third time since the 2008/09 financial crisis. 

Yohay Elam from Forex Crunch, affirms that the slide of the US dollar took place because the Fed made no change to rate projections, there was no reassessment of economic outlook, the rate is getting closer to the neutral rate, there was a dovish dissenter vote and the “buy the rumor, sell the fact” behavior. According to analysts from Westpac, Fed fund futures are now fully pricing the next hike to occur in September, previously it was August. 

The decisions pushed US bonds to the upside. The 10-year yield dropped from 2.57% to 2.50%, the lowest in a week. In Wall Street, equity prices reacted positively. The Dow Jones finished with a 0.55% gains and the S&P 500 rose 0.84%. Gold jumped from $1205 to $1220 and it was rising 1.45%. Lower yields and risk appetite contributed to undermined the demand for the USD.