Fed-Fueled Dollar Rises As Bears Head For Exits
Global exchange rates https://tmsnrt.rs/2RBWI5E
The dollar index, which tracks the greenback against six major currencies, rose 0.37% to 92.213, its highest since mid-April. This puts the index on pace with a weekly gain of nearly 2%, its best weekly jump in about 14 months.
The currency shake was triggered on Wednesday by the Fed’s forecast showing that 13 of 18 board members saw rates rise in 2023, down from just six previously, with the middle board member tilting two hikes in 2023.
Investors’ risk appetite took another hit after St. Louis Federal Reserve Chairman James Bullard said on Friday that the U.S. central bank’s turn this week toward faster policy tightening monetary policy was a “natural” response to economic growth and in particular to faster than expected inflation. as the country reopens after the coronavirus pandemic.
“I think this is a direct echo of the taper tantrum of 2013. You see a perceived shift in the Fed’s reaction function that is pushing investors towards the security of the US dollar,” said Karl Schamotta, chief strategist of the US dollar. markets at Cambridge Global Payments in Toronto.
As investors anticipate a faster-than-expected decline in the extraordinary US monetary stimulus, the euro and yen have come under selling pressure in recent trading sessions.
“Basically the whole world was short of dollars for it, from speculative traders to businesses to investors,” Schamotta said.
“You are seeing a wholesale relaxation here,” he said.
The unwinding of large bearish bets against the dollar should support the greenback in the coming days, investors said.
Goldman Sachs Asset Management’s head of currencies Arnab Nilim, who had been a seller of the US currency before the June Fed meeting, told Reuters he reduced the position and expects the dollar US is performing well, especially against low-yielding currencies.
With an accommodating European Central Bank seemingly far behind the Fed in the monetary policy cycle, traders will be reluctant to buy euros against dollars.
“The US central bank has a head start and therefore the US dollar should remain well supported against the euro,” Commerzbank strategists said in their daily note.
With stock markets struggling, the Australian dollar – seen as an indicator of risk appetite – fell 0.68% to 0.74995, its lowest since December 2020.
The British pound extended its decline against the US dollar on Friday, falling below $ 1.39, penalized by the Fed’s hawkish surprise and an unexpected drop in UK retail sales.
The risk move has also hit cryptocurrencies, with bitcoin failing to capitalize on the announcement that Spanish bank BBVA will open a bitcoin trading service to all private banking clients in Switzerland. Bitcoin was down 7.0% to $ 35,451.09.
(Reporting by Julien Ponthus and Tom Westbrook; Editing by Catherine Evans, Andrea Ricci and Jonathan Oatis)
By Saqib Iqbal Ahmed and Julien Ponthus