Dollar Strengthens as Fed Signals Higher Rates for Years

The US dollar strengthened after the Federal Reserve raised interest rates and hinted at more increases in the near future. The Fed's policy rate now sits between 3.75% and 4.00%, a range it expects to stay around for years to come.

The central bank's 'dot plot' showed 16 out of 18 policymakers anticipating at least one more quarter-point move by year-end, signaling that borrowing costs may remain higher for longer. This development boosted the dollar index by 0.3% to 99.961 and sent the yen weaker.

The logic behind this move is straightforward: when US interest rates are expected to stay above those of its peers for years, holding dollars becomes more lucrative, making hedging out of the currency pricier.