Fed reserve raised their interest rate but how on earth that US dollar could depreciate. I have read newspapers on the reaction of US dollars to its main trading partners. All I hear is some bullishit, and these reporters are just making up stories. After I had suffered from some Brexit news earlier this year, this time I was very cautious and set my orders really in safe place so I did not suffer today. But surely, I must be missing something. Anyone really understands why US dollar depreciated today? Did anyone actually make money today?
The reality of the market is that the connection between the financial values and their "fundamental" is slim to none.
The yield curve flattened a bit. Dollar would have made money in a parallel shift. It will probably reverse in a day or 2. We still have the pending fiscal stimulus. EDIT: I just realized the dollar slipped before the flattening. Who knows?!?
If you look at any news driven events, e.g. unemployment, housing, manufacturing, etc, you'll notice there isn't really much of a correlation between how the market reacts and the figures. The market has already priced the expectations, and these figures/news events are often just a "catalyst" or "excuse" to move the market in the direction it wants to go. The only time you'll find a correlation is when the news is a total surprise out of left field. So if the FOMC announced that interest rates would be 1.5%, you can pretty much guarantee the Dollar will go up. The <1% was already baked into the cake, so it's really anyone's guess what would have happened today.
The rate rise was entirely priced into the market, the reason the dollar fell is because there are likely to be fewer rates rises this year than expected before.
Thanks for all your response. I am taking a tutorial session on purchasing power parity and interest rate parity this week so I did some research by reading journals posted on central banks and commercial banks. I've realised that the current inflation exceeded the target of 2 % so the hike was merely a compensation to investors. But still, I have expected initial appreciation of US dollars than straight depreciation. I also have realised that the last hike from which I made money, Feb reserve raised the interest rate when inflation was below the target so the interest rate was attractive then .
https://www.federalreserve.gov/monetarypolicy/files/monetary20170315a1.pdf "excluding energy and food prices, inflation was little changed and continued to run somewhat below 2 percent" "the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run."
Corporate credit, gold, DXY, metals, discounted a hawkish, jawboning fed for two weeks prior to this meeting. The fed surprised, disappointed hawks and bears. Price reaction of the aforementioned post-fed is dramatic (yet no follow through yet). The only thing I could see behaving "strange" relative to all else the last couple weeks was the large steepening of the 2 under 10yr curve. Maybe a little sell the news inmthis partof the curve , post fed .
After I've just finished the tutorial session, I've got clearer idea about this exchange rate movement by interest rate changes. The initial reaction could be either appreciation or depreciation but the end result would be depreciation since US inflation rate has exceeded their target of 2 %, and US has to raise interest rate to give compensation for investors for the decline in the value of their investment.