BREAKING: USD drops after Fed delivers 50 bp rate hike

A long-awaited FOMC decision has been just announced. In-line with market expectations, the US central bank decided to deliver the first 50 basis point rate hike in 22 years, pushing Fed funds rate to 0.75-1.00%. Fed also sees further rate hikes as appropriate. Such a move and announcement were well-communicated by Fed members in weeks preceding the meeting therefore attention was paid primarily to announcement on balance sheet reduction. As expected, Fed announced that trimming of the balance sheet will begin but what one may see as somewhat disappointing is that it will not begin immediately but in June. Balance sheet run-off will begin on June 1st, 2022 at a monthly pace of $47.5 billion. Pace will increase to $95 billion after 3 months. Market hoped for an initial pace to be $60 billion therefore the decision can be seen as less hawkish than expected. Market reaction reflects this view with the US dollar weakening against major peers. US indices jumped in a knee-jerk move before paring part of the gains later on.

EURUSD jumped following the decision and tested the upper limit of a short-term range. However, bulls were unable to deliver a break so far.

Source: xStation5

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