USD index skyrocketed as Fed announced coming measures to combat inflation

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar             1.2650-1.2750

Euro                     1.4100-1.4250

Sterling                1.6950-1.7100

The US Dollar index is much higher this morning as the markets reacted to the dramatic news from the Federal Reserve yesterday. The Federal Reserve indicated that the employment in the US is now consistent with a full employment scenario and that they stand ready to tackle inflation in a very aggressive manner. The financial markets are now expecting that there will be five interest rate hikes in the US this year and the Fed has not ruled out a 0.50% increase at their next meeting in March. As you would expect the US Dollar soared on the news and the index hit a high last seen in July of 2020, stocks that had been positive before the announcement all fell back and now look like they might be entering a bear market this year.

USD.CAD opens the day at the 1.2690 (0.7880) level as it fell victim to the stronger US Dollar, on the positive side it held its own again the other currencies so it was not a total loss for the Loonie.

The Bank of Canada kept its key lending rate at 0.25% as expected but did indicate that they are ready to also increase interest rates going forward, but most likely not as aggressively as the Fed will be doing, The Bank also indicated that inflation will decline to 3% in the 2nd half of the year (from 5% in the first half) and that the Canadian economy will grow by 4% this year and 3.5% in 2023.

Up today we get the first reading on the US 4th Quarter GDP where they are expecting a growth rate of 5.5%. The markets should remain volatile either way but if this number is higher than expectation look for the US Dollar to jump as it will give further fuel to the Fed decision to increase by 0.5% in March.