U.S Dollar Propels High on a Hawkish Federal Reserve Bank

Although the Federal Reserve Bank left the rate unchanged on Wednesday, its most recent statement on progress and strong policy support, indicators of economic activity and employment levels improving, affirmed it was just a matter of time, the U.S central bank will tighten its monetary supply amid growing concerns over growing inflation.

Additionally, FOMC members moving up the timeline for rate hikes, pushing the value of the U.S dollar index used in tracking the greenback’s strength against six major currencies to its highest level since early May, triggering selling pressures on risker assets like Bitcoin, precious metals at Wednesday trading session.

Currency traders were stunned at the sudden hawkish narrative of the Federal Reserve Bank as many believed Jerome Powell led monetary team will maintain its longstanding view that inflation is transitory meaning it would maintain a dovish tone, however with such change dollar bears dropped back to the bench as the U.S central bank upgraded estimates for inflation.

Weighing hard on the mind of Dollar bears is Jerome Powell assertion that pointed monetary officials had begun a discussion about tapering bond purchases, with such declaration showing the economic outlook of the $21 trillion plus economy remains relatively strong, further giving DXY bulls enough gas to stay above 91.3 index points, though the lingering threat of virus variants and the Fed’s chief insistence that the actual commencement of any policy normalization was still far off.

Market pundits further anticipate that such a change in narrative with 13 of 18 monetary officials favouring at least one rate increase by the end of 2023, versus seven in Q1, suggesting the Fed might pull the brakes on its quantitative easing programs sooner than later in order to prevent the world’s biggest economy from overheating, arbitrarily weakened buying pressures at global stock markets for the near term.