The action by the Fed. Not a tightening but it is better than nothing. So dollar rises.
The rise in the Discount Rate is not to be considered a tightening just yet, but it is a further step toward normalcy. The Fed is not looking to raise rates for consumers or businesses in the rate rise. The Discount Rate is for banks and banks alone. It represents the rate that banks pay in case they can not fund their bank in the normal course of business with other banks. As a result, it represents a penalty rate now being above normal Fed Funds rate target.
What is important in the forex market is that it puts the US ahead of the rest of the world and that, in and of itself, is why we are seeing the dollar get stronger. The Eurozone is not ready to do that. The UK is not ready to do that but the US made a step.
Going forward the Fed signal a tighten via an increase in the reserve requirement.
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