NEW YORK (Reuters) – The dollar surged to a fresh two-decade high on Wednesday after the Federal Reserve raised interest rates by another 75 basis points, as expected, and signaled more large increases at its upcoming meetings.
The Fed’s new projections showed its policy rate rising to 4.4% by the end of the year, before peaking at 4.6% in 2023 to curb uncomfortably high inflation. Rate cuts are not expected until 2024.
The dollar index hit a fresh 20-year high of 111.63 and was last up 1.1% at 111.42.
The euro, the largest component in the dollar index, dropped to a 20-year low, hitting $0.9810. Europe’s single currency last changed hands at $0.9837, down 1.3%.
Against the yen, the dollar posted minor gains compared to other currencies, rising 0.5% to 144.41 yen. Traders were wary of pushing the dollar higher given the threat of Japan intervention to boost the yen.
“They (the Fed) have a brief window to act aggressively, and they seem eager to use it,” said Jan Szilagyi, co-founder and CEO of Toggle AI, an investment research firm.
“There is another reason to frontload the hikes. Public and market tolerance for tighter monetary policy is far higher with the unemployment rate below 4%, a historic low.”
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