Jakarta, CNBC Indonesia – The rate of strengthening of the United States (US) dollar finally stopped, even slumped in trading on Wednesday (4/5/2022). In fact, the US central bank (The Fed), according to market participants’ predictions, raised interest rates by 50 basis points (bps) to 0.75%-1%.
According to Refinitiv data, the US dollar index fell to 0.85% yesterday and continued to fall 0.23% to 102.352. The index that measures the strength of the US dollar is moving away from a 20-year high of 103.928 reached on Thursday (28/5/2022) last week.
As a result of yesterday’s slump, several Asian currencies were able to strengthen against the US dollar on Thursday (5/5/2022). The Malaysian ringgit, which was traded again after the Eid holiday, immediately shot up 0.41% and led the gains.
The following is the movement of major Asian currencies up to 12:17 WIB.
The fall in the US dollar index occurred because the Fed chairman, Jerome Powell ruled out the possibility of a 75 basis point rate hike, and the market had long anticipated a 50 basis point increase. That is, the market has price-inand the US dollar was hit by action profit taking because there are no surprises from most central banks powerful in this world.
“The Feds have communicated their policy well, and they really did. This is a big policy, and not a shock to the market. So it’s a good thing,” said Simona Mocuta, chief economist at State Street Global Advisors, as quoted from Reuters.
Not only raising the benchmark interest rate, the Fed has also explicitly mentioned the plan to normalize the balance sheet (balance sheet). During the Corona virus pandemic (Coronavirus Disease-2019/Covid-19), the Fed bought up securities worth US $ 120 billion per month. Of course the Fed’s balance sheet became “fat” so it had to “diet”.
The purchase of securities during the pandemic made the Fed’s balance sheet swell to US $ 9 trillion. In June, July and August, the balance sheet will be reduced by US$ 47.5 billion each month. Starting in September, the value has been reduced to US$ 90 billion per month.
The reduction was less than the market forecast of US$ 95 billion per month, which put further pressure on the US dollar.
CNBC INDONESIA RESEARCH TEAM
(pap)
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