SINGAPORE - The dollar was in its lowest level in more than a month on Thursday after the U.S. Federal ReserveFederal Reserve raised its benchmark interest rate by 50 basis points, but it poured cold water on the idea that even larger rises could lie ahead.
The U.S. dollar index fell 0.9% overnight to 102.450, a five-year high and fell 0.9% from a five-year high. The Aussie dollar, which enjoyed its biggest one day percentage gain in over a decade, surged as investors backed off bets on the Fed staying ahead of Australia's central bank.
The euro went up nearly 1% and last bought $1.0606. The yen fought its way back to the stronger side of 130 per dollar for the first time in a week, last trading at 129.26.
The Bank of England is expected to hike 25 bp on the swaps markets later in the day, and the pound rose over 1% to $1.2605, more than 1% of the value of the pound.
The Fed's hike was the largest since 2000, as policymakers tried to tamp down inflation. Chair Jerome Powell said at the press conference that Fed members aren't actively considering 75 basis-point moves in the future.
Fed funds futures rallied to take some of the edge from markets' aggressive outlook on U.S. rates, though a further 200 bps of hikes remain priced in for the rest of the year.
Brian Daingerfield, head of G 10 foreign exchange strategy at NatWest Markets, wrote in a note to clients that the Fed simply could not or better, would not hurdle the hawkish bar that the market had set.
I don't think it's a hyperbole to say that today was the first surprise of the Fed relative to market expectations in over six months. The Australian dollar's 2.2% leap was its largest since late 2011 and followed by a surprisingly hawkish turn from the Reserve Bank of Australia, which began its cycle of interest rate rises with a larger than expected 25 bp hike on Tuesday. The Aussie was last at $0.7236, a bit lower from its overnight peak of $0.7265. The New Zealand dollar rose 1.7%, its biggest one-day rise in two years, to a close to $0.65 at $0.6537.
The dollar's losses gave support to cryptocurrencies. It was its best day in more than five weeks, rising 5% to just below $40,000.
Trade was thinned in Asia due to a public holiday in Japan.