May 05, 2022 03:04AM ET
By: AnalysisWatch
The U.S. dollar edged higher in early European trading on Thursday, trying to recover from sharp losses in the previous session after the Federal Reserve raised interest rates but also tempered expectations for even bigger increases in the future.
At 3:05 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 102.828 after falling nearly 1% from a two-decade high following the Fed decision.
The EUR/USD fell 0.2% to 1.0598 after rising about 1% in Asian trade, while the USD/JPY rose 0.4% to 129.55 after falling below the physiologically important 130 level for the first time in a week.
The U.S. Federal Reserve on Wednesday announced a widely expected 50 basis point increase in the benchmark interest rate, the largest hike since 2000.
However, Fed Chairman Jerome Powell's comments that Fed members would not actively consider a future 75 basis point hike surprised many currency market participants, as traders had been increasingly betting that the FOMC would opt for an even bigger rate hike to try to combat inflation, which is the highest it has been in four decades.
Still, the dollar is trying to rally on Thursday as another 200 basis points of rate hikes are still priced in for the rest of the year.
Attention now turns to the Bank of England. It is widely expected that the British central bank will raise the key interest rate by 25 basis points later in the meeting, which would be the fourth consecutive rate hike.
GBP/USD traded 0.6% lower at 1.2402.
The AUD/USD pair fell 0.6% to 0.7222, giving back some of their earlier gains after the Reserve Bank of Australia raised interest rates on Tuesday to fight inflation, while USD/CNY traded 0.1% higher at 6.6171 on fears that stringent COVID freezes would hamper China's efforts to boost economic growth.