US dollars
US Dollars Image Credit: Agency

New York: The dollar fell in volatile trading against a basket of currencies on Wednesday after the Federal Reserve raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years.

The rate increase was widely expected. The US central bank set its target federal funds rate to a range between 0.75% and 1% in a unanimous decision, with further rises in borrowing costs of perhaps similar magnitude likely to follow.


The Fed also said that its $9 trillion balance sheet would be allowed to decline by $47.5 billion per month in June, July and August and the reduction would increase to as much as $95 billion per month in September.

The dollar index was last at 103.20, after getting as low as 103.07 after Fed statement

The euro rose to $1.0553, after briefly reaching$1.0573.

The dollar was 129.87 against the Japanese yen, after briefly dropping to 129.75.

Stocks and Treasuries Fluctuate

Stocks and Treasuries fluctuated as traders watched closely Federal Reserve Chair Jerome Powell's conference for clues on how aggressively the central bank will tackle inflation after delivering the biggest rate hike since 2000.

The Federal Open Market Committee voted unanimously to increase the benchmark rate by a half percentage point. It will begin allowing its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of $47.5 billion, stepping up over three months to $95 billion.

"The FOMC today made their first meaningful move towards righting their inflation wrong, and this should be welcomed by investors rather than feared," said Seema Shah, Chief Strategist, Principal Global Investors.

JPMorgan Chase & Co.'s chief Jamie Dimon said the U.S. central bank should have raised rates sooner as price pressures hit the global economy. Treasury Secretary Janet Yellen sees a possible "soft landing" as the Fed moves to bring down inflation. "I do believe we're going to see solid growth in the coming year," she said in an interview at a Wall Street Journal event on Wednesday.