Fed Hike Sends Euro Plummeting to Multi-Month Lows

The Federal Reserve's decision to hike interest rates for the first time in over three years has sent shockwaves through the financial markets, with the euro plummeting to multi-month lows against the US dollar.

The unanimous vote by the FOMC was seen as a clear sign that the Fed is committed to fighting inflation, with updated economic projections showing stronger growth and lower unemployment, but also persistently high inflationary pressures in the near term.

The hawkish tone of the decision was reinforced by Federal Reserve Governor Kevin Warsh's comments, who stated that he would be 'hard pressed to describe broad financial conditions as restrictive', suggesting that current policy is not particularly restrictive even after the hike.

The reaction in US rates was swift, with yields lurching higher across the curve, led by the front end. The 2-year yield rose 13.2bp from immediately before the decision, compared to 11.4bp for 5-year yields.