Washington (awp/afp) – The dollar soared on Wednesday, pushed by the now more cautious posture of the American central bank (Fed) regarding its cycle of rate cuts.
Around 9:30 p.m. GMT, the greenback jumped 1.20% against the single European currency, to 1.0367 dollars per euro.
The Dollar index, which compares the American currency to a basket of other major currencies, reached its highest level in more than two years, increasing 1.08% to 108.12 points.
“The Fed surprised the market with stronger signals that it will pause its rate hikes,” Adam Button of ForexLive commented to AFP.
“Her main message is that she is not satisfied with the progress made on inflation,” he added.
The Fed announced on Wednesday that it had lowered its main rates for the third time in a row, by 25 basis points, bringing them to a range between 4.25% and 4.50%, in line with market expectations.
But it now plans to go more slowly, considering only two rate cuts for 2025, of 25 basis points each.
The institution is “getting very close” to the end of its downward cycle, assured Fed President Jerome Powell, assuring that the institution’s Monetary Policy Committee (FOMC) will be “more cautious, regarding possible future rate cuts.
“Inflation has slowed significantly over the last two years but remains relatively high compared to our long-term objective of 2%,” he admitted.
“In the past, the Fed brushed aside inflation, (…) was more worried about employment,” recalled Mr. Button. “Today, the balance seems to have been restored in favor of inflation.”
The Fed has a dual mandate, requiring it to ensure both price stability, with a long-term inflation target of 2%, and to guarantee a labor market as close to full employment as possible.
This new posture “also gives the American central bank more flexibility to react in the event of unforeseen political consequences,” added the analyst.
The economic policy put in place by President-elect Donald Trump, who will return to the White House from January 20, could influence the Fed’s position.
The prospect of inflationary policies during the Republican candidate’s second term – customs duties, tax cuts and an increase in the budget deficit – has already contributed to the explosion of the dollar.
Cours de mercredi Cours de mardi 21H30 GMT 22H00 GMT EUR/USD 1,0367 1,0491 EUR/JPY 160,33 161,00 EUR/CHF 0,9335 0,9366 EUR/GBP 0,8239 0,8254 USD/JPY 154,69 153,46 USD/CHF 0,9007 0,8927 GBP/USD 1,2582 1,2710
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