Dollar rises to three-week high after Fed decision

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Currency exchange values are displayed in the buy-sell board of a bureau de exchange in Buenos Aires, on August 31, 2018. - Argentina's peso began to recover on Friday as markets opened, making a tiny 0.68 percent gain after losing 20 percent of its value against the dollar over the previous two days.
Eitan Abramovich | AFP | Getty Images

The dollar rose to a three-week on Wednesday after the Federal Reserve signaled that it is likely to raise U.S. interest rates in March as expected and later launch a significant reduction in its asset holdings.

The combined moves will complete a pivot away from the loose U.S. monetary policy that has defined the pandemic era and toward a more urgent fight against inflation.

The Fed's statement at the end of its two-day policy meeting left questions about the timing of rate hikes and reducing the U.S. central bank's almost $9 trillion balance sheet, but markets reacted calmly to the statement.

The dollar index measuring the value of the greenback against six major currencies rose 0.456%.

"The statement still leaves a lot of questions to be answered particularly when it comes to the balance sheet roll-off. There wasn't a whole lot of detail provided," said Russell Price, chief economist at Ameriprise Financial.

But Lee Ferridge, head of macro strategy for North America at State Street Global Markets, said quantitative tightening will happen.

"The idea of the balance sheet reduction as now mentioned in the statement puts us on the table for June," he said.

Equity markets had been on a roller-coaster ride this week as the combination of a hawkish Fed and slowing growth unnerved investors, prompting them to dump high-flying technology shares and seek refuge in safe-haven assets such as the dollar.

The euro slipped 0.44% to $1.1249 while the Japanese yen weakened 0.62% to 114.57 per dollar.

The Bank of Canada earlier said it will soon start hiking rates to combat inflation as the Canadian economy no longer needed to help mitigate the impact of COVID-19. The central bank surprised some analysts by leaving rates unchanged at 0.25%

The Canadian dollar fell 0.21% versus the greenback to 1.27 per dollar.