The dollar ended its longest losing streak 2-1/2 years after the Federal Reserve paused interest rate hikes. Meanwhile, the Swiss franc strengthened following the central bank’s additional increase.
The Federal Reserve raised the benchmark funds rate by 25 basis points as widely expected but held back on the current hike needed in favor of some hikes as it watches how consumer confidence in banks affects the economy.
Futures imply a roughly 50% chance of another quarter-point hike, unlike Europe, where markets see around 50 bps of further policy tightening.
The volatility pushed the euro to a seven-week high of $1.0932, which was also advanced for six consecutive sessions.
A change in approach from the Fed will unlikely return markets to the excitement that strong economic data will raise rates.
The appreciation of the dollar suggests that there should be a further depreciation from a foreign exchange rate point of view since the highest rate the Federal Reserve can set has decreased.
The dollar index last retreated 0.22%, on track for its sixth daily decline, the longest since 2021.
After the CB decision, the franc stabilized and finally gained 0.22% against the dollar at 0.9156.
Other currencies
Sterling also remained near a seven-week peak after Wednesday’s surprise uptick in British inflation, which will keep it at 10.4% and piled pressure on the Bank of England to raise rates.
The Norwegian krone climbed and remained stable versus the euro and dollar following Norges Bank hiking interest rates by 25 basis points to 3.3%, mentioning that an additional increase might be possible in May.
The Australian and New Zealand dollars advanced by 0.63% and 0.92%, respectively. The dollar/yen tracks US yields closely and retreated 0.32% after hitting a six-week low of 130.41.
Two-year US Treasury yields retreated 2 bps, down from about 20 bps on Wednesday.
The sudden failure of Credit Suisse two weeks ago has shaken financial markets worldwide, causing a loss of faith in banking systems and further disruption.
Fed Chairman Jerome Powell said deposit flows firmed last week, and smaller lenders reported some benefits.
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