The U.S. Federal Reserve’s decision on Wednesday to raise U.S. interest rates by 75 basis points to 3.25% was well priced into the markets and, therefore, should come as little surprise to investors. The accompanying statement also contained little new information. Why did the markets react so strongly?
The devil, as the saying goes, is very much in the details. In this instance, we’re referring to the underlying message from the U.S. Federal Reserve (Fed). Wednesday’s announcement was accompanied by the FOMC’s latest economic projections, which is part of its closely watched federal funds rate projections (the dot plot).
A rise in interest rates typically causes bond prices to fall. The longer the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest-rate changes. The yield earned by a fund will vary with changes in interest rates.
Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a fund’s investments.
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