Dollar returns to its former greatness having reached 3-month highs
2023.03.08 02:52
Dollar returns to its former greatness having reached 3-month highs
By Ray Johnson
Budrigannews.com – On Wednesday, Federal Reserve Chair Jerome Powell issued a warning that the central bank will likely raise interest rates more than anticipated, dimming the outlook for regional markets. As a result, the dollar rose to a three-month high and the majority of Asian currencies fell.
In a testimony that Powell gave to Congress, he stated that the recent resilience of the U.S. economy required the Fed to act more aggressively to reduce inflation. Markets began pricing in a faster rate of the Fed’s interest rate increases in the coming months as a result of this.
Following an overnight rise in Treasury yields, the dollar index and dollar index futures climbed 0.2% to a three-month high on Wednesday. For the first time since 2007, 2-year yields in the United States exceeded 5%.
As the gap between risky and low-risk returns narrowed, demand for Asian currencies was reduced as the dollar strengthened and yields became more appealing. Through 2022, this trend had a negative impact on regional currencies and is likely to continue in the near future.
Markets are awaiting nonfarm payrolls data on Friday and the Fed’s Beige Book report, both of which are scheduled for later today.
Following mixed trade data and warnings of a potential conflict between the two largest economies in the world, persistent concerns regarding China also weighed.
The Chinese yuan lost 0.2% against the dollar and was on the verge of breaching the crucial level of $7, which could result in further losses for the currency. Tuesday’s data showed that despite the country’s record-breaking trade surplus in February, imports fell significantly more than anticipated, indicating weak demand in Asia’s largest economy.
The Malaysian ringgit fell nearly 1.2% on the day, making risky Southeast Asian currencies the worst performers. The Philippine peso and the Indonesian rupiah both lost 0.7%.
The weak economic readings this week reinforced expectations that the Bank of Japan will maintain its ultra-loose policy on Friday, which led to a 0.5% decline in the Japanese yen. In January, Japan’s current account deficit grew more than anticipated, and Thursday’s data are expected to confirm that the Asian economy slowed significantly in the fourth quarter of 2022.
The BOJ’s upcoming leadership transition is also likely to have little effect on policy changes.
After suffering significant losses on Tuesday, catch-up trade saw the Indian rupee fall by 0.2 percent and the Australian dollar rise by 0.2 percent.
Asia FX is shaken by hawkish Fed talk, and the dollar reaches a three-month high.
