Dollar Strong After Fed Week

Federal Reserve monetary policy announcement was the most important event this week (though several other central banks made their policy decisions as well). While an interest rate hike was expected, the actual event still managed to surprise markets, sending the US dollar higher against its most-traded counterparts.

Markets widely expected a quarter point increase to the federal funds rate, and the Fed did not provide any surprise here. But an upward revision to the “dot plot” was a surprise as now it suggests three interest rate hikes next year, not two expected previously. That boosted the dollar, sending it to the 14-year high against the euro.

Three major European central banks also held policy meetings this week — the Bank of England, the Swiss National Bank, and the Norges Bank. Unlike the Fed, they did not make changes to their policies and made no unexpected announcements or major revisions to their economic projections.

EUR/USD declined from 1.0531 to 1.0440, touching the low of 1.0366 during the week. GBP/USD was down from 1.2573 to 1.2485. USD/CHF climbed from 1.0183 to 1.0252, and its weekly high of 1.0343 was the highest since August 2010.

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