US Dollar Rallies Amid Hawkish FOMC Meeting Outcome

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The US Fed adopted a more hawkish stance during its recently-concluded FOMC meeting, as markets begin pricing in a possible four or five rate hikes in 2022. The US dollar received a massive boost from the event allowing it to gain significantly against other top currencies.

That said, reactions in the stock markets were surprisingly not pessimistic. The British pound recorded the second-best performance amongst other top currencies, as inflation outlook could push the Bank of England for a rate hike this week.

Meanwhile, the Australian dollar recorded the worst performance last week as the Reserve Bank of Australia has yet to show any intentions of tightening its monetary policy. The New Zealand dollar also saw a poor performance due to its risk exposure. Both Aussie and kiwi got weighed down by the risk flight in the Asia markets. Euro and Swiss Franc traded on a mixed sentiment along with the Canadian dollar, although the latter eventually received support from booking oil prices.

US Fed to Implement Five Rate Hikes in 2022

A rate hike in March is pretty much confirmed as the Fed said that “it will soon be appropriate to raise the target range for the federal funds rate.” Also, Fed Chair Jerome Powell did not rule out the possibility of a 50 base point rate hike, asserting that every meeting is “live.”

According to the latest Fed fund futures pricing, a 25 basis point rate hike is already priced in for the March FOMC meeting. Also, there is a 74% chance of another interest rate increase in May. The third 25 basis point hike could come in June or July, while the fourth would come between September and November. If there is a fifth hike, it should come in December or January.

The more aggressive hawkish outcome could see five rate increases in March, May, June, September, and December. Meanwhile, the less aggressive outcome could see four rate hikes in March, May, July, and November.