Dollar Index Cracks 100 as Fed delivers hawkish hike
The Fed has raised its rate to 3.75-4.00%, its first increase since 2023. This index measures the Dollar against six currencies, and it is not a broad measure. The Euro alone is 57.6% of it.
The Federal Reserve (Fed) increased the benchmark interest rate to a range of 3.75-4.00%, marking its first hike since 2023. The Dollar Index, which measures the value of the US Dollar against six major currencies, breached the 100 mark following the hawkish rate decision. Six central banks, including the European Central Bank (ECB) and the Bank of England, are also raising rates.
The Fed's decision to raise rates more aggressively than its counterparts led to the index's surge. The US Dollar, as the world's primary reserve currency, gained strength following the decision. The Fed's mandate is to maintain price stability and foster full employment, with interest rates being its primary tool. When inflation is above the 2% target, the Fed raises rates, strengthening the Dollar; conversely, when inflation falls below 2%, or unemployment is high, the Fed may lower rates, weakening the US Dollar.
The index dipped to 99.70 post-announcement, then rose to 100.00, indicating a 0.30 increase from its pre-decision level.
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