The fourth interest rate hike by the US Federal Reserve this year and the second to an unusually high extent of 0.75 percentage points met with a great response on the financial markets on Thursday and caused some unusual price movements.

On the foreign exchange market, the euro, which fell briefly below $1.01 during the Fed meeting, appreciated sharply and cost a high of $1.023 in Frankfurt trading on Thursday morning.

In fact, higher interest rates make currencies more attractive, so one might have assumed that the rise in US interest rates would attract more internationally invested money to the dollar area and drive the dollar up.

But the opposite happened, at least on Thursday.

Hanno Mussler

Editor in Business.

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The bond markets also only reacted with slight increases in yields in the longer range of maturities at the short end.

Ten-year American Treasuries, for example, yielded 2.8 percent instead of 2.7 percent on Thursday, and the ten-year German government bond yielded 0.98 percent instead of 0.96 percent.

This means that the long end in America and Europe is almost unchanged, while the Fed's interest rate hike of 0.75 percentage points has now significantly raised the interest corridor for short-term lending to 2.25 to 2.50 percent.

Stock markets are reacting kindly

European stock markets opened well on Thursday after US stock markets had been boosted by the interest rate decision.

The technology stock index Nasdaq-100, for example, closed a significant 4.6 percent higher.

On Thursday morning in Frankfurt, the Dax initially rose by 0.4 percent to a peak of 13,238 points.

In the further course of trading, the leading German index then turned negative and was only just over 13,100 points at midday.

A different market reaction could also have been expected on the stock market: interest rate increases are actually considered bad for stocks because bonds with higher interest rates become stronger competitors in the fight for investor money.

But at second glance, the market reactions make sense.

Thanks to its two recent very aggressive interest rate hikes, the Fed is now "no longer behind the curve," said Jeffrey Gundlach, founder of the US investment company Double Line Capital, which manages a good $2 billion, to the American television channel CNBC.

By that, Gundlach means: Investors had been expecting rate hikes for a long time before the Fed finally started to act in spring 2022.

The central bank lagged behind the average interest rate expectations – until Wednesday evening.

Now there are even hopes that the Fed will no longer take the fight against inflation so seriously and instead will pay more attention to ensuring that it does not smother the pace of growth in the American economy with further interest rate hikes.

Only smaller rate hikes?

But Fed Chair Jerome Powell called inflation "much too high" at his press briefing on Wednesday, even as he hinted that the pace of rate hikes may now be slowing.

The second part of the sentence was probably exactly what investors wanted to hear and what they then bet on: Gundlach, for example, now expects the US key interest rate to be around 3 percent at the end of the year, i.e. only an interest rate step of 0.5 to 0.75 percentage points away.