The US dollar rose to a fresh two-decade high on Wednesday after the Federal Reserve raised interest rates by another 75 basis points. The dollar index, measuring the greenback against the basket of six currencies, reached a fresh 20-year high of 111.63 and was last up 1.1% at 111.42.

The euro, the largest component in the dollar index, fell to a 20-year low, touching $0.9810. Europe’s single currency last changed hands at $0.9837, down 1.3%.

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The dollar gained 0.5% against the yen in comparison to other currencies, increasing to 144.41 yen.

The central bank also signaled more large increases at its upcoming meetings. The Fed’s new projections showed its policy rate rising to 4.4% by the end of the year, before peaking at 4.6% in 2023 to control record high inflation. Rate cuts are not expected until 2024. 

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The GDP growth forecast has been marked down to 1.2% in 2023 and 1.7% in 2024, below the longer-run trend. Unemployment is seen increasing to 4.4% in 2023.

Stephen Gallo, European head of foreign exchange strategy at BMO Capital Markets, said the dollar’s strength “is incrementally becoming more problematic for the world economy” as it puts pressure on emerging market issuers of foreign currency debt and commodity exporters.

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The dollar’s rise also followed an address by Russian
President Vladimir Putin, in which he said that the country’s armed forces
would call up its reserves immediately to support the war in Ukraine. The US
dollar is widely accepted as a haven currency during times of geopolitical
tension and economic stress. 

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“The dollar has retained good momentum so far this week,
largely benefiting from safe-haven demand as risk sentiment has remained quite
fragile,” said Francesco Pesole, an FX strategist at ING, the Dutch bank.