US dollar rallies on Fed rate hike

Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee made a decision to raise the target range for the federal funds rate to 1/4 to 1/2 percent'.

The dollar index.DXY, which measures the greenback against a basket of other major currencies, was up 1.3 percent at 99.158, on pace for its biggest percentage gain since October 22.

"A follow-up Fed hike could come as soon as March, aided and abetted by favourable oil price base-effects that will lift inflation nearly a percentage point and a potentially mild winter", said Franulovich.

In the post-meeting press conference, Fed Chair Janet Yellen said that further US monetary tightening would be " gradual" and data-dependent.

The Fed's own projections were for 100 basis points of hikes in 2016.

"The Fed is more hawkish than the market has been on where interest rates will be at the end of 2016", said Chris Gaffney, president of EverBank World Markets in St Louis. "But given the USA decision to raise rates in spite of the global economy still lacking vigor, we will see risk-off factors coming into play sporadically", Uchida added, pointing to the latest fall in oil prices to multiyear lows Wednesday as one factor of concern. "The fact that risk appetite was retained was key to the dollar's strength, in addition to the rise in Treasury yields".

In metals, some large aluminium smelters in China are likely to participate in a commercial stockpiling programme, which would support prices and increase cash to producers, industry sources said on Wednesday.

Along with their Canadian peer, the Antipodean currencies fared badly. To post more gains, the dollar may have to first overcome expectations based on currency moves that followed previous Fed rate hikes.

"Dollar long positions were being liquidated in the market at a faster pace than expected", said Junichi Ishikawa, market strategist at IG Securities in Tokyo. "In addition, the dollar typically encounters some form of profit-taking against the major currencies in the initial phases of the Fed hiking cycle". The euro, extending its overnight losses, slipped 0.6 percent to $1.0851. The New Zealand dollar advanced to 93.90 Australian cents from 93.46 cents yesterday, advanced to 44.89 British pence from 44.76 pence, gained to 61.90 euro cents from 61.63 cents, edged up to 82.27 yen from 82.13 yen, and fell to 4.3644 yuan from 4.3885 yuan. The Aussie was down 0.7 percent at $0.7182.