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US dollar falls after Fed's quantitative easing decision
The US Federal Reserve on Wednesday accelerated the winding down of its asset purchase program
Dec 16, 2021
1 min read
Anna BakkerNews analyzer

The dollar fell in response to the expected decision on the wave of profit taking.

The dollar index on Wednesday updated three-week highs above 96.8 immediately after the announcement of the results of the two-day Fed meeting. The strengthening of the US currency met waves of selling, forcing the DXY to pull back below 96.3.

The US Federal Reserve is expected to accelerate the rate of cut of the asset purchase program from $ 15 billion a month to $ 30 billion, allowing the central bank to complete it in full by March next year. The regulator will adjust the pace of asset purchases based on the economic outlook.

The new FOMC member rate trajectory forecast, which is updated quarterly, suggests three increases each in 2022 and 2023. In September, about half of them believed that a rate hike earlier than 2023 would be unjustified.

The Fed's decision demonstrated how accelerating inflation and rising inflationary pressures amid continuing labor shortages are affecting economic forecasts and the central bank's monetary policy stance, writes DJ Newswires.

In a statement following the Fed meeting, it is noted that the condition for inflation to slightly exceed the target level of 2% has been met, but rates will be held at about zero until conditions in the labor market become maximum. Job.

Fed chief Powell said at a press conference that the process of curtailing asset purchases has accelerated due to high inflation. The Fed rate forecasts are not a plan, the process will be determined by the economy, and the rate hike will be gradual. At the same time, Powell does not believe that the interval between the completion of the purchase of assets and the increase in rates will be long.

The Fed rate futures market has a 90% chance of raising its rate for the first time in April. Goldman Sachs analysts expect three notches up - in May, July and November.

"The Fed's move towards more aggressive emission cuts poses a much greater risk to asset prices than investors believe," Morgan Stanley said. Correction in the markets may start in the first quarter.

“The US dollar, after a short pause since late November, may return to growth and even accelerate it on clear signals from the largest Central Bank,” said a group of analysts at GravityPlus.

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