Dollar pulls back from 20-year high after the Federal Reserve delivers its largest interest rate hike since 1994

• The US Dollar Index fell in topsy-turvy moves Wednesday after the Fed raised its key interest rate by 75 basis points.
• The Japanese yen and the British pound each gained 1% against the greenback.

The US dollar broadly fell in volatile trading Wednesday after the Federal Reserve ushered in its largest interest rate increase in nearly 30 years and the central bank's chairman said moves of that size will likely be uncommon as it keep hiking rates to combat hot inflation.

The US Dollar Index fell 0.7% to 104.78 but darted between gains and losses after the Federal Open Market Committee raised the fed funds rate by 75 basis points to a range of 1.25% to 1.75%. The vote was 10-1, with Kansas City Fed President Esther George preferring an increase of 50 basis points.

The Japanese yen surged against the greenback, leaving the dollar down 1% at 134.12 yen. The British pound also jumped, up 1.3% at $1.215 and the euro was modestly higher against the dollar, up 0.1% at $1.0427.

The Dollar Index had gained about 9% this year and hit a fresh 20-year high this week above 105. The index gauges the greenback's performance against the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc.

Investors began pricing in expectations of an increase of 75 basis points after the May inflation reading last week hit a fresh 41-year high of 8.6%, a faster acceleration than what was widely anticipated.

"This is an unusual situation to get some data late during [the FOMC's] blackout, very close to our meeting…one that would change the outcome," Fed Chairman Jerome Powell said during an afternoon press conference after the FOMC released its policy statement.

The FOMC foresees the key rate ending 2022 at 3.4%, up from its previous outlook of 1.9%. Powell said the central bank will be nimble about responding to and assessing incoming economic data.

"Clearly, today's 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common," said Powell. "From the perspective of today, either a 50 basis point or a 75 basis point increase seems most likely at our next meeting. We will, however, make our decisions meeting by meeting and we'll continue to communicate our thinking as clearly as we can."