Published by Jessica Weisman-Pitts
Posted on November 3, 2022
4 min readLast updated: February 3, 2026
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By Amanda Cooper and Gertrude Chavez-Dreyfuss
LONDON/NEW YORK (Reuters) – The dollar firmed on Thursday, after the Federal Reserve signalled U.S. interest rates will likely peak at a higher rate than markets had expected, while the pound fell after the Bank of England raised rates but warned of a “very challenging outlook.”
The BoE lifted UK interest rates to 3% from 2.25% in its largest single increase since 1989 as it battles the twin forces of a slowing economy and red-hot inflation.
The central bank forecasts inflation will hit a 40-year high of around 11% during the current quarter, but it pushed back against expectations for further steep rate hikes, saying Britain has already entered a recession that could potentially last two years – longer than during the 2008-09 financial crisis.
The Fed on Wednesday raised interest rates by 75 basis points to a target range of 3.75%-4.00%, the fourth such increase in a row as Chair Jerome Powell dampened hopes of a pivot to an easier monetary policy.
“It is very premature to be thinking about pausing” on the effort to lift the federal funds target rate, Powell said in a news conference on Wednesday.
Juan Perez, director of trading at Monex USA in Washington, said the dollar’s dominance will continue “as thoughts of a recession grow for the global economy, which will drive more flight to safety bids towards the buck.”
“After Powell’s press conference yesterday it is clear that even for Fed officials the level of volatility and unpredictability is getting to be too much. Without knowing whether he wanted to sound dovish or hawkish, Powell demonstrated that the Fed is dealing with a frustrated course of economic data that has shown just how seriously stubborn inflation remains.”
The futures markets on Thursday has priced in U.S. rates peaking at 5.1% at the June meeting in 2023, which was up from about 4.9% initially expected in May.
In mid-morning trading, the euro fell 0.4% against the dollar to $0.9777. That pushed the dollar index up 0.5% on the day at 112.62. Earlier, it touched 113.15, its highest since Oct. 21.
The pound initially slid by as much as 1.7% against the dollar after the BoE’s statement and dropped against the euro before recovering some ground. Sterling was last down 1.6% at $1.1210.
The BoE’s decision – the biggest rate rise in 33 years apart from a failed attempt to support the pound on Black Wednesday in 1992 – was in line with economists’ expectations in a Reuters poll, but was not unanimous.
“With two members of the MPC not willing to endorse the 75 bps rate hike this month and given the likelihood that the UK economy will be in recession the next time the BoE meets, the prospects of another 75-bps hike from the Bank could appear to be too difficult an ask,” said Jane Foley, head of FX strategy at Rabobank.
The pound, like most major currencies, had already been on the backfoot against the dollar on Thursday.
In the United States, U.S. two-year U.S. Treasury yields, the most sensitive to shifts in interest-rate expectations, hit a more than 15-year high of 4.745%.
The dollar was slightly lower against the yen at 147.77 yen, as traders continue to watch for any further official intervention to shore up the battered Japanese currency.
Japan spent a record $42.8 billion propping up the yen last month via a series of unannounced purchases, after spending almost $20 billion in September.
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Currency bid prices at 10:40AM (1440 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 112.6500 112.1400 +0.47% 17.757% +113.1500 +111.8100
Euro/Dollar $0.9775 $0.9816 -0.41% -14.01% +$0.9839 +$0.9730
Dollar/Yen 147.8100 147.9350 -0.08% +28.40% +148.4400 +147.1200
Euro/Yen 144.50 145.23 -0.50% +10.88% +145.3500 +144.0500
Dollar/Swiss 1.0106 1.0032 +0.75% +10.81% +1.0147 +1.0006
Sterling/Dollar $1.1205 $1.1390 -1.60% -17.13% +$1.1421 +$1.1157
Dollar/Canadian 1.3753 1.3715 +0.27% +8.76% +1.3808 +1.3683
Aussie/Dollar $0.6310 $0.6348 -0.58% -13.18% +$0.6372 +$0.6273
Euro/Swiss 0.9878 0.9849 +0.29% -4.74% +0.9890 +0.9831
Euro/Sterling 0.8720 0.8618 +1.18% +3.81% +0.8733 +0.8608
NZ $0.5785 $0.5819 -0.52% -15.44% +$0.5838 +$0.5744
Dollar/Dollar
Dollar/Norway 10.5650 10.4510 +1.22% +20.09% +10.6360 +10.4420
Euro/Norway 10.3291 10.2713 +0.56% +3.16% +10.3665 +10.2421
Dollar/Sweden 11.1625 11.0951 +0.15% +23.80% +11.2405 +11.0764
Euro/Sweden 10.9135 10.8973 +0.15% +6.64% +10.9415 +10.8937
(Reporting by Amanda Cooper in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Joice Alves in London, Tom Westbrook in Sydney and Ankur Banerjee; Editing by Kim Coghill, Susan Fenton and Andrea Ricci)
The Federal Reserve, often referred to as the Fed, is the central bank of the United States, responsible for setting monetary policy, regulating banks, and maintaining financial stability.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is often measured by the Consumer Price Index (CPI).
A central bank is a national institution that manages a country's currency, money supply, and interest rates, and oversees the banking system.
A currency exchange rate is the value of one currency for the purpose of conversion to another. It determines how much of one currency you can exchange for another.
Monetary policy refers to the actions taken by a central bank to control the money supply and interest rates to achieve macroeconomic goals such as controlling inflation and stabilizing currency.
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