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Fed Raises the Interest Rate: What Does It Mean for Investors?

PART:
1 2 3 4 5
Part 3
Fed Raises the Interest Rate: What Does It Mean for Investors? PART 3 OF 5

US Dollar Index Fell despite the Fed’s Interest Rate Hike

Dollar index

The US Dollar Index showed huge movement after the presidential election. When the country’s economic conditions strengthen, its currency strengthens.

US Dollar Index Fell despite the Fed’s Interest Rate Hike

US Dollar Index Fell despite the Fed’s Interest Rate Hike

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The US Dollar Index (UUP) (UDN) (USDU) showed huge movement after November 9, 2016. It rose nearly 4% from November 9 to December 14, 2016. On December 14, it rose nearly 0.7% after the announcement of the Fed’s rate hike decision. The US Dollar Index strengthens when the Fed increases its key interest rate.

The rate hike is appropriate in the economy when the economy shows a stronger move. The strengthening of the country’s currency after the rate hike also indicates that the economy is in a good phase. A stronger currency also improves investors’ confidence in the economy.

US Dollar Index after the Fed’s announcement

Between February 16, 2017, and March 8, 2017, the US Dollar Index rose nearly 1.6%. The expectation for the Fed’s rate hike increased during this period. However, on March 15, 2017, after the Fed announced the rate hike, the US Dollar Index experienced a sharp fall. It fell nearly 1% on the same day.

The fall in the US Dollar Index could be correlated to the fact that the market (SPY) (QQQ) (IWM) expected more tightening in the monetary policy or a much more hawkish stance from the Fed. Earlier, higher movement in the US Dollar Index could have discounted for a higher move in the interest rate policy decision. After the interest rate decision was announced, the US Dollar Index retreats.

In the next part of this series, we’ll analyze how crude oil performed after the Fed’s decision.

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