Why Did The Increase In Interest Rates By The Fomc Did Not Increase The Value Of The U.S Dollar (USD)?

Posted by Klejdi Cuni on

As you may know, yesterday FOMC Increased the Interest Rates. 

Usually, an Increase in Interest Rates means that the central bank is supporting the economy and this leads to an increase in the value of the country's currency.
So, Why did the USD dollar is losing ground today?

U.S. Inflation Hit Fresh 40-Year High of 7.9% Before Oil Spike

"The surge in energy prices putting additional upward pressure on US inflation."

"Russia's invasion of Ukraine has added to inflation pressures and implications are highly uncertain."

"Reducing the balance sheet will also play an important role in tightening policy."

So overall the high inflation at an all-time high in 40 years is adding pressure to the U.S dollar. 

Despite rising interest rates, Powell's speech was rather Dovish. Therefore, he accompanied the increase of interest rates with a dovish tone.

The main purpose for this was to support the economy with higher interest rates to fight inflation by keeping a weaker dollar.

A weaker dollar means that exports will improve over time and also a weaker dollar means that all S & P500, US100, US30, Russell2000, etc. indices will increase as well.

This means that most companies within the respective indexes will increase in value as many of them are currently undervalued for no apparent reason.

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