The US dollar surged to its strongest level in 14 years on Thursday, after a monetary policy decision from the Federal Reserve yesterday carried hints of a possible accelerated pace of increasing interest rates in the coming year.
The Federal Open Market Committee released its policy statement at 19:00 GMT on Wednesday, which said that the central bankâs benchmark interest rate was raised by 0.25%. The move was widely expected by investors everywhere and in itself had a little effect on financial markets, even though it was the Federal Reserveâs first rate hike since December 2015.
However, the federal committee also published its economic projections for 2017, which revealed a possibility of raising interest rates three times during the year. Investors were surprised by the faster pace, which compares to two times in Septemberâs projections from the central bank.
The Federal Reserve said that maintaining economic strength is a main condition for these hikes to become a reality. For 2016, the central bank had forecast four interest rate increases but ended up raising rates only once.
The fresh interest rate hike from the Federal Reserve comes after Donald Trump won the US presidential election in November. The president-elect is expected to drive up inflation and boost economic growth with his plans of increasing fiscal spending, cutting corporate taxes, and lowering financial and environmental regulations. Higher inflation often prompts the Federal Reserve to raise interest rates faster.
EUR/USD traded at 1.0422 as of 15:40 GMT on Thursday, after touching 1.0399 at 13:05 GMT, the pairâs highest level since December 2002. EUR/USD opened trading today at 1.0549. GBP/USD traded at 1.2415, after kicking the day off at 1.2598.
The Dollar Index, which measures the performance of the US currency against its major peers, touched 103.12 at 15:31 GMT, from 103.26 at 15:15 GMT.
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