The U.S. Dollar tumbled against a basket of currencies on Wednesday after the U.S. Federal Reserve raised interest rates as expected, but left its rate outlook for the coming years unchanged. The rate hike was widely expected, but the dollar came under pressure after the Fed’s monetary policy announcements as the U.S. central bank kept its interest rate projections steady rather than revising them higher.
March U.S. Dollar Index futures settled at 93.024, down 0.676 or -0.72%.
The Fed raised its benchmark rate by a quarter point to a range of 1.25-1.50 percent on Wednesday. The central bank projected three more rate hikes in both 2018 and 2019, unchanged from its September forecasts. Recently, a few Fed officials had talked about cutting the number of rate hikes to two. Others had speculated the Fed could raise its interest rate projection for next year to four rate hikes.
U.S. Economic News
The U.S. Dollar was also pressured earlier in the session after U.S. core consumer price data released on Wednesday showed slowing inflation, raising concerns the Fed will be less able to execute multiple rate increases next year.
The Labor Department said on Wednesday its Consumer Price Index increased 0.4 percent last month after edging up 0.1 percent in October. That raised the year-on-year increase in the CPI back to 2.2 percent from 2.0 percent in October. The increase was in line with economists’ forecasts.
Core CPI advanced 0.2 percent in October. As a result, the annual increase in the core CPI slowed to 1.7 percent in November from 1.8 percent in October.
Gold surged on Wednesday in reaction to a steep drop in the U.S. Dollar following the Fed’s decision to raise interest rates. Although the Fed raised its benchmark interest rate as widely expected, it left its outlook on rates unchanged. This was the catalyst for the spike in gold prices.
U.S. West Texas Intermediate and international-benchmark Brent crude oil declined for a second day on Wednesday as a drawdown in U.S. crude stockpiles was offset by a larger-than-forecast rise in gasoline stocks and as U.S. crude oil production continued to climb to record highs.
U.S. Equity Markets
The major U.S. stock indexes closed mixed on Wednesday after the release of the Fed’s interest rate and monetary policy decisions. Traders also reacted to the news that Congressional leaders had reached a tentative agreement on a tax overhaul plan.
The Dow posted a record intraday high and record close, led by solid gains in Caterpillar. The S&P 500 Index closed lower, driven by financials which posted their worst session since November 7, falling 1.3 percent. Earlier in the session, it hit a new all-time high.