Forex News

Dollar just off 20-year highs, rally hinges on Fed signals

2022.05.04 11:57

Dollar just off 20-year highs, rally hinges on Fed signals
FILE PHOTO: Currency signs of Japanese Yen, Euro and the U.S. dollar are seen on a board outside a currency exchange office at Narita International airport, near Tokyo, Japan, March 25, 2016. REUTERS/Yuya Shino

By Sujata Rao

LONDON (Reuters) – The dollar index pulled further away from 20-year highs on Wednesday, having already priced the U.S. Federal Reserve to raise interest rates by a half-point later in the day and by some 250 basis points by year-end.

Currency markets have settled in to wait for the Fed’s 1800 GMT announcement and Chairman Jerome Powell’s news conference, having endured wild gyrations in recent weeks, with the dollar soaring to 20-year highs against a basket of currencies.

Money markets are betting the Fed will raise rates as high as 3.6% by end-2023 to tame inflation at 40-year highs. Having kicked off its hiking cycle in March, the Fed is seen delivering a 50 bps move on Wednesday, with two more half-point hikes priced for the next two meetings.

It may also announce when it will start reducing its $9 trillion balance sheet.

Those bets lifted the dollar index 5% last month to around 103.93. It has since slipped 0.3% off those levels and by 00830 GMT, was at 103.39, slightly lower on the day.

“A major correction in the dollar would happen only if the Fed pushes back against hawkish market pricing and until they do that, there is a degree of freedom for markets to reprice the terminal rate to 4%,” ING Bank strategist Francesco Pesole.

“We are also in a situation where if you let go of dollar positions, where do you put your money?,” Pesole said, noting the effect of the Russia-Ukraine war on Europe and the economic slowdown in China.

Dollar strength has weighed on other currencies, pushing the euro last week to two-decade lows around $1.0469. It stood at $1.0512 on Wednesday.

“The fundamentals, the interest rate difference, the growth outlook, the risk-off mood, all tend to favour the dollar,” said Gergely Majoros, member of the investment committee at Carmignac.

“A lot of factors point to a stronger dollar and weaker euro…in our global portfolio we have increased dollar positioning.”

Some note markets’ expectations of future U.S. inflation — so-called breakevens — derived from Treasury inflation-protected securities (TIPS) have eased, with 5-year breakevens around 3.2%, versus April highs of 3.6%.

ING’s Pesole dismissed the moves, however.

“If the Fed provides an indication they will aggressively front-load the tightening cycle and the back end of the Treasury curve comes off a bit, that will be the indication that markets are starting to price the Fed getting ahead of the curve (on inflation),” he added.

Source

Related Articles

Leave a Reply

Back to top button
bitcoin
Bitcoin (BTC) $ 68,815.44 0.12%
ethereum
Ethereum (ETH) $ 2,438.63 1.21%
tether
Tether (USDT) $ 0.999482 0.09%
bnb
BNB (BNB) $ 558.41 0.39%
solana
Solana (SOL) $ 161.85 1.31%
usd-coin
USDC (USDC) $ 1.00 0.05%
xrp
XRP (XRP) $ 0.510531 0.41%
dogecoin
Dogecoin (DOGE) $ 0.169587 7.96%
staked-ether
Lido Staked Ether (STETH) $ 2,438.01 1.10%
tron
TRON (TRX) $ 0.161877 2.04%
cardano
Cardano (ADA) $ 0.330723 0.41%
the-open-network
Toncoin (TON) $ 4.59 5.09%
shiba-inu
Shiba Inu (SHIB) $ 0.000018 3.79%
wrapped-steth
Wrapped stETH (WSTETH) $ 2,883.44 1.00%
wrapped-bitcoin
Wrapped Bitcoin (WBTC) $ 68,784.43 0.29%
avalanche-2
Avalanche (AVAX) $ 23.24 1.45%
weth
WETH (WETH) $ 2,438.28 1.10%
bitcoin-cash
Bitcoin Cash (BCH) $ 339.06 0.40%
chainlink
Chainlink (LINK) $ 10.58 0.49%
leo-token
LEO Token (LEO) $ 6.07 0.09%
usds
USDS (USDS) $ 0.993167 0.68%
sui
Sui (SUI) $ 1.94 2.63%
polkadot
Polkadot (DOT) $ 3.83 1.03%
litecoin
Litecoin (LTC) $ 67.06 0.32%
near
NEAR Protocol (NEAR) $ 3.71 1.24%
wrapped-eeth
Wrapped eETH (WEETH) $ 2,564.51 1.17%
aptos
Aptos (APT) $ 8.23 0.16%
uniswap
Uniswap (UNI) $ 6.94 0.05%
pepe
Pepe (PEPE) $ 0.000008 0.71%
internet-computer
Internet Computer (ICP) $ 7.13 1.21%
dai
Dai (DAI) $ 0.999942 0.12%
bittensor
Bittensor (TAO) $ 428.94 0.12%
fetch-ai
Artificial Superintelligence Alliance (FET) $ 1.17 1.59%
monero
Monero (XMR) $ 159.28 0.11%
ethena-usde
Ethena USDe (USDE) $ 1.00 0.05%
stellar
Stellar (XLM) $ 0.092193 0.37%
whitebit
WhiteBIT Coin (WBT) $ 18.91 0.01%
ethereum-classic
Ethereum Classic (ETC) $ 17.99 0.85%
kaspa
Kaspa (KAS) $ 0.105622 2.27%
first-digital-usd
First Digital USD (FDUSD) $ 0.999567 0.04%
polygon-ecosystem-token
POL (ex-MATIC) (POL) $ 0.299435 0.29%
blockstack
Stacks (STX) $ 1.51 1.95%
okb
OKB (OKB) $ 37.46 0.44%
dogwifcoin
dogwifhat (WIF) $ 2.06 0.41%
filecoin
Filecoin (FIL) $ 3.32 1.87%
crypto-com-chain
Cronos (CRO) $ 0.072095 0.28%
aave
Aave (AAVE) $ 129.92 0.43%
arbitrum
Arbitrum (ARB) $ 0.480567 1.20%
mantle
Mantle (MNT) $ 0.558475 1.05%
immutable-x
Immutable (IMX) $ 1.07 1.38%