The euro rose sharply against the dollar on Wednesday, briefly reaching the symbolic threshold of $1.10, its highest level in almost 10 months, after the announcement of the decision of the American central bank (Fed), which raised its key interest rate by a quarter of a point.
The move took place despite statements by Fed Chairman Jerome Powell, who said he expected several more rate hikes in the coming months, a sign that monetary tightening should continue.
The single currency rose to 1.1000 dollars for one euro, a first since the beginning of April 2022. Around 8:35 p.m. GMT, it was displayed at 1.0996 dollars, up 1.22%.
The Fed on Wednesday carried, as expected, its rate to a range from 4.50% to 4.75%, the highest in 15 years.
During his speech, Jerome Powell held a speech of firmness, affirming that the task (was not) finished in the fight against inflation. We still have work to do, he hammered.
It would be very premature to declare victory, insisted the central banker.
However, currency traders have been cautious about the extent of the monetary tightening still to come.
Their central scenario is that of a final rate hike in March, by another quarter point, which would constitute a peak in this cycle. They also expect at least one rate cut, possibly two, in the second half of 2023.
The Chairman of the Fed, however, felt on Wednesday that it would not be appropriate to lower rates this year or to ease monetary policy.
For Jerome Powell, this divergence of view is largely due to the fact that the market anticipates that inflation will slow faster than the Fed expects.
The market apparently decided that (Jerome) Powell’s press conference was less offensive than expected, as StoneX’s Matthew Weller commented.
The reaction of the bond market also reflected the vision of investors. The yield on 2-year US government bonds, considered to better reflect medium-term monetary policy expectations than the 10-year rate, plunged to 4.12%, against 4.20% on Tuesday at the close.