Dollar hits two-year high after Federal Reserve cuts interest rates by a quarter point as expected

A trader shows U.S. dollar notes at a currency exchange booth.
Akhtar Soomro | Reuters

The dollar index hit a two-year high on Wednesday as the Federal Reserve cut interest rates after Fed Chairman Jerome Powell said the 25-basis-point cut was not the same as the beginning of a lengthy rate cutting cycle.

The dollar index rose 0.42% to 98.46 in afternoon trading, its highest level since May 2017 when the dollar index hit a high of 98.891. 

Some were expecting the Fed to leave the door open for further cuts or even a 50 basis point cut after Wednesday's meeting, so the less dovish stance sent U.S. stocks to session lows and the dollar index to a more than two-year high.

"The Fed signaled that it is going to be data dependent but markets were priced for a more dovish outlook which the Fed did not deliver on, said Collin Martin, director of fixed income at the Schwab Center for Financial Research in New York.

"Markets were priced for a quarter-percentage-point cut but maybe they were looking for clarity that a second cut would be coming soon, some sort of a calendar based guidance.

Against the euro the dollar was 0.4% stronger, last at $1.111, its strongest level since May 2017.

The yen stood just off three-week lows against the dollar after the Bank of Japan refrained from expanding stimulus, though it committed itself to doing so "without hesitation" if required.

The pound, which has tumbled this week as investors rushed to factor in the growing possibility of Britain leaving the European Union without transition trade arrangements in place, firmed 0.59% to $1.222, crawling back from a 28-month trough of $1.212 plumbed on Tuesday.