The Fed's Rising Interest Rates Boost the US Dollar This Year

The US Federal Reserve (The Fed)'s decision to raise its benchmark interest rates throughout the year has strengthened the US dollar against major world currencies.

This condition is reflected in the US dollar index (DXY), which showed an upward trend until early November 2022. According to Yahoo Finance data, the US dollar index closed at 111.48 on November 1, 2022. This figure is up 16.53% compared to its year-end position last year at 95.67.

The Japanese yen was the most affected by the rise of the US dollar. Between January 3 and November 1, 2022, the JPY fell 29.27% to 148.74 per US dollar.

The Swedish krona also plummeted 21.79% to 11.02 per US dollar. The British pound sterling depreciated by 15.04% to 1.1468 US dollars, and the euro also fell 12.71% to 0.9886 US dollars. The EUR even fell below its parity (1).

Similarly, the Swiss franc weakened by 8.76% to 0.9986 US dollars, and the Canadian dollar fell 6.8% to 1.3611 per US dollar.

For information, The Fed again decided to raise its benchmark interest rate by 75 basis points to a range of 3.75-4% in the FOMC meeting held on November 1-2, 2022.

This was the sixth time this year that rates have been raised, reaching their highest level in 14 years. The 75 basis point increase was also the fourth consecutive such increase.

US inflation, currently at 8.2% (year-on-year/yoy), still leaves room for The Fed to raise interest rates again at its next meeting. This is because current inflation is still far above the target of 2%.