U.S. Rate Hike and the Dollar

Yesterday, the Federal Reserve raised rates by 0.25% to 1.25%, their highest level since the height of the financial credit crisis in 2008, almost 9 years ago.

Janet Yellen’s words on inflation were a little stronger than had been anticipated by the market’s consensus. The net result was a rise in the value of the U.S. Dollar, although there are other pressures working against this and the rise has not been very large or strong so far. In any case, when the U.S. Dollar has a very clear and reasonably strong directional movement, you can usually use the movement by comparing how different assets have won or lost against the greenback.

Chart, Forex

Almost everything is down against the U.S. Dollar. The only exception is the British Pound, which has just been boosted by an unexpectedly strong vote in favor of hiking British interest rates by the Bank of England, although they decided to leave rates unchanged at 0.50%. Just prior to the release of the vote, it was down about 0.60%. Of the selected currencies, the one that stands out is the Euro, which is falling further and more sharply than any other major currency. At the time of writing, it is threatening to break below the nearest key support level of 1.1163. The strong move is significant because yesterday the price strongly rejected a retest of a multi-month high at 1.1295, so we may be seeing the start of a major fall in the EUR/USD currency pair.

Commodities such as Gold and Crude Oil are usually exponentially more volatile than currencies, yet these are substantial and significant drops, especially for Crude Oil which is already in a downwards trend and has been so for more than three months. Crude Oil tends to have quite a high positive correlation with the stock market, as when the economy slows, so does demand for Crude Oil.

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