FX Roundup: Dollar up against major crosses after Fed decision

The dollar rose against a basket of global currencies on Thursday, with the US Federal Reserve raising benchmark interest rates by 25 basis points.

Speaking at a press conference after the policy announcement late on Wednesday, Fed Chairwoman Janet Yellen assured the market that any future rate increases would be gradual and would depend on economic growth.

She added that if the Fed had continued to delay a rate rise it could have been forced to implement a more aggressive increase if economic growth soared and inflation suddenly jumped towards the 2% target.

“Overall, we believe the Fed succeeded in being neither too hawkish nor too dovish, which is reflected in the muted market reaction,” according to Dankse Bank analysts. “We stick to our view that the Fed will hike three times in 2016 and four in 2017.”

At 1601 GMT, the dollar extended gains against the yen by 0.39% changing hands at JPY122.69. Meanwhile, the pound fell against the dollar to exchange at $1.4882 down by 0.81%, while the euro fell 0.74% to change hands at $1.0831.

Commodity linked currency crosses also headed lower with the Australian dollar down 1.69% against its US counterpart exchanging at US$0.7111. Meanwhile, the New Zealand dollar was down 1.47% changing hands at US$0.6698. The greenback also rose 1.17% against the Canadian dollar exchanging at CAD$1.3941.

Kit Juckes, head of forex at Societe Generale, said, “The overnight reaction to the Fed rate hike has seen equity markets rally, oil prices remain very soft, commodity currencies fall back, and the dollar rally across the board. It is up against all the other G10 currencies.”

“The focus will now be on the timing of the next Fed move, the pace thereafter, and the implications for commodity prices, capital flows out of emerging markets and China's currency policy. If the Fed raises rates by 1% next year, in line with the path implied by the FOMC's forecasts, the dollar will be significantly stronger by December 2016. In practice, they'll tighten less, in part because of further dollar strength.”

Finally, in Latin America, the dollar also traded higher against the Chilean (up 0.08%) and Mexican (up 0.66%) pesos.