Federal Reserve Hikes Interest Rate

Source: Dukascopy Bank SA
On May 4, the US Federal Reserve released its Federal Open Market Committee Statement and hiked the Federal Funds Rate from 0.50% up to 1.00%. The rate hike was expected by the markets, as the members of the central bank had revealed their plans for May.

Meanwhile, the markets looked at the FOMC Statement for clues about the future policy of the central bank. In general, the statement revealed that the central bank would start to reduce its balance sheet by a maximum of $95 billion per month.

Quoting the statement: "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate.

In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in conjunction with this statement. "

Released Document

Federal Reserve issues FOMC statement

The EUR/USD pair reacted to the news with an initial surge of 37 base points or 0.35%.

On a larger scale, the EUR/USD has declined more than 15.00% since the start of 2021. During 2022, the currency exchange rate has moved down by 8.22%.

Initial Reaction

Larger scale situation

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