US Dollar Recovers After Sell-Off Caused by Fed Announcement

Today, the US dollar was recovering after yesterday’s sell-off caused by the policy announcement from the Federal Reserve. Initially, the greenback extended its decline during the current trading session but managed to reverse movement and is now trading above the opening level against almost all most-traded currencies, with the exception of the Japanese yen.

As was expected, the Fed announced an interest rate hike by a quarter point to target the range of 1.5%-1.75% on Wednesday. The Fed also upgraded its economic growth forecast for 2018 to 2.7% from 2.5% in the December forecast and also changed the projected unemployment rate from 3.9% to 3.8%. Yet traders were more interested in the dot plot, and it remained unchanged, meaning that the US central bank still plans three interest rate hikes in total this year — a disappointment for dollar bulls, who were waiting for an announcement of additional hike.

There is an additional danger for the US currency — the threat of trade wars. US President Donald Trump announced today a tariff of at least $50 billion on Chinese goods. It is not clear yet how China will respond to that, but the Asian nation and the world’s second biggest economy is likely to retaliate in some manner.

EUR/USD rallied from 1.2339 to 1.2388 before pulling back to 1.2308 by 19:25 GMT today. GBP/USD slid from 1.4137 to 1.4111 following the rally to 1.4218. At the same time, USD/JPY declined from 106.06 to 105.59.

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