Dollar falls after Fed announcement

The dollar depreciated broadly against major currencies on Wednesday after the Federal Reserve (Fed) signaled that future interest rate hikes could come in smaller increments to combat high inflation.

The Fed, as expected, raised its key lending rate by 75 basis points for the fourth time at the end of a two-day policy meeting on Wednesday. In a statement, the US central bank acknowledged the debate around policy tightening, its impact on the US and world economies and the danger that larger rate hikes could strain the financial system or trigger a recession. "The market interpreted it as a dovish statement," said Marc Chandler, chief market strategist at Bannockburn Global Forex. "Instead of a 75 basis point hike, this confirms the market's idea that the Fed will slow hikes to 50 basis points when it meets in December," Chandler said. The euro was up 0.54% against the dollar at $0.9927, while against the Japanese yen the dollar fell 1.2% to 146.405 yen. The Fed's fight against inflation, which is hovering at multi-decade highs, has kicked off the most aggressive rate hike campaign in more than a decade. "We live in a world where a 50 basis point hike is somehow dovish," Chandler said. Futures markets kept bets high that the Fed could raise rates by more than 50 basis points in December as key reports on the labor market and consumer price index could change the outlook. Fed funds futures priced in a 98.4% probability that the Fed will raise rates by 75 basis points at its December 13-14 meeting, which would raise the policy rate to a range of 4.50%-4.75%. Growing expectations that the Fed will reduce the aggressiveness of its rate hikes have weighed on the dollar in recent weeks. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!