Dollar falls after Fed rate hike

By Laura Matthews

NEW YORK (Reuters) - The dollar fell against a basket of its peers on Wednesday after the Federal Reserve raised interest rates by a quarter of a percentage point, citing still-elevated inflation as a rationale for what is now the highest U.S. central bank policy rate in 16 years.

The increase brings the benchmark overnight interest rate in the 5.25%- to 5.50% range, while the accompanying policy statement left the door open to another increase.

The dollar index, a measure of the U.S. currency against six major peers, fell 0.345% at 1.1093. Futures expect the Fed's overnight rate to stay above 5% until June 2024.

Analysts said the FOMC meeting was as expected, with Chair Jerome Powell "playing it close to straight down the middle" between hawkish and dovish on the rates outlook going forward.

"His confidence that a soft landing is very possible even while leaving the door equally open to more hikes or a hold on rates sent the dollar lower and equity markets higher," said John Velis, head of Americas macro strategy, BNY Mellon (NYSE:BK) Markets in New York. "His lack of overt hawkishness is probably behind the market moves in the immediate aftermath of the meeting and the press conference."

A resilient U.S. economy in the face of interest rates already considered restrictive has helped lift the dollar index from a 15-month trough of 99.549 reached July 18.

But Amo Sahota, director at Klarity FX in San Francisco, said the Fed wants to avoid the market thinking about a rate cut too soon.

"The Fed has to make sure its bark is more than its bite. They want to make sure the market is apprehensive about pricing in rate cuts too early. Although most market participants, including us, think we are there," said Sahota.

FOCUS ON CENTRAL BANKS

The European Central Bank is expected to deliver a similar hike on Thursday, but budding evidence of an economic slowdown has called into question the chances of another by year-end.

The euro edged up 0.36% to $1.1093.

Klarity's Sahota said while there is the potential that the ECB could end up overtightening and cripple the marketplace, "the expectation is for two more rate hikes."

The Bank of Japan will hold its meeting on Friday, which might shed light on its yield curve control policy. Speculation about a hawkish tweak to that policy led the yen to soar earlier in the month, but it has receded in recent days.

The yen strengthened 0.46% versus the greenback at 140.21 per dollar.

Sterling was last trading at $1.2945, up 0.35% . The Bank of England sets rates on Aug. 3, with money markets are split between a 25 bps or a 50 bps rate hike.

In cryptocurrencies, bitcoin last rose 0.54% to $29,385.75.

Ethereum last rose 0.55% to $1,872.52.

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Currency bid prices at 3:56PM (1956 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

100.9400 101.3100 -0.35% -2.464% +101.4300 +100.8500

Euro/Dollar

$1.1094 $1.1059 +0.32% +3.54% +$1.1107 +$1.1038

Dollar/Yen

140.2150 140.9700 -0.54% +6.95% +141.1800 +139.9400

Euro/Yen

155.55 155.76 -0.13% +10.87% +155.9800 +155.1600

Dollar/Swiss

0.8602 0.8641 -0.43% -6.95% +0.8656 +0.8599

Sterling/Dollar

$1.2946 $1.2901 +0.36% +7.06% +$1.2960 +$1.2878

Dollar/Canadian

1.3204 1.3172 +0.25% -2.54% +1.3238 +1.3174

Aussie/Dollar

$0.6764 $0.6793 -0.40% -0.76% +$0.6793 +$0.6730

Euro/Swiss

0.9543 0.9550 -0.07% -3.56% +0.9561 +0.9536

Euro/Sterling

0.8568 0.8567 +0.01% -3.12% +0.8586 +0.8562

NZ

Dollar/Dollar $0.6223 $0.6222 -0.04% -2.06% +$0.6234 +$0.6184

Dollar/Norway

10.0940 10.0690 +0.76% +3.38% +10.1560 +10.0660

Euro/Norway

11.2060 11.1206 +0.77% +6.76% +11.2401 +11.1231

Dollar/Sweden

10.3831 10.3683 +0.60% -0.24% +10.4569 +10.3403