Dollar Down, Investors Continue to Digest Fed’s Policy Decision

The dollar remained under pressure on Friday, a day after the Bank of England and European Central Bank adopted more hawkish stances than markets had expected, giving a boost to sterling and the euro. The dollar was also down in Asia, with the U.S. Federal Reserve tightening its monetary policy in a hawkish pivot.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.13% to 96.360 by 10:39 PM ET (3:39 AM GMT).

The USD/JPY pair inched up 0.09% to 114.11.

The AUD/USD pair was down 0.13% to 0.7158, with jobs data from the Australian Bureau of Statistics showing that the employment change was at 366,100, the full employment change at 128,300, and the unemployment rate was 4.6%, in November.

The NZD/USD pair was down 0.19% to 0.6765.

The USD/CNY pair was flat at 6.3675 and the GBP/USD pair inched down 0.08% to 1.3252.

The Federal Reserve System, often referred to as the Federal Reserve or simply “the Fed,” is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system.

The Fed will accelerate its asset tapering program to $30 billion per month, it said in its policy decision meeting on Wednesday. The central bank also kept its interest rate unchanged at 25% but will have three quarter-point interest-rate increases in 2022, another three in 2023, and two more in 2024 to tackle inflation.

“The economy no longer needs increasing amounts of policy support,” said Fed Chair Jerome Powell. He compared the near-depression situation at the beginning of COVID-19 in 2020 with current rising prices and wages, as well as rapid improvement in the job market.

“It suggests to me that markets were positioned for the Fed being more hawkish than survey expectations would have you believe. Also, that risk assets took the latest pivot so well reinforces the fact that the U.S. dollar and risk sentiment seem to be negatively correlated,” NAB head of FX strategy Ray Atrill told Reuters.

Investors are now looking to policy decisions from the European Central Bank (ECB) and Bank of England (BOE) later in the day, while that of the Bank of Japan will come on Friday.

“To some extent, the reaction to the Fed might have to wait for what the ECB does, because we're expecting the contrast between the ECB's disposition and the Fed's will be laid bare later tonight and that could probably be a catalyst for the U.S. dollar to push through the highs overnight,” said Atrill.

The ECB as the central bank of the 19 European Union countries which use the euro. Their main task is to maintain price stability. They do this by making sure that inflation remains low, stable and predictable. In this way, they seek to help you plan your saving and spending. The ECB is set to end their Pandemic Emergency Purchase Program, but investors are still betting that the central bank will not hike interest rates just yet.

The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based.

The Bank of England on Thursday became the world's first major central bank to raise interest rates since the coronavirus pandemic hammered. It is also attempting to tackle inflation and calm concerns about the fast-spreading omicron variant. U.K. data on Wednesday showed that the consumer price index (CPI) grew 5.1% year-on-year in November, its highest level in a decade. The CPI grew 0.7% month-on-month. A consumer price index is a price index, the price of a weighted average market basket of consumer goods and services purchased by households. Changes in measured CPI track changes in prices over time.