Sun, Apr 24, 2022 page10

• US dollar hits 2-year high due to Fed hike outlook

  • Reuters
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  The US dollar surged to a more than two-year high on Friday, continuing to draw support from US Federal Reserve Chair Jerome Powell’s comments on Thursday that seemed to back a half a percentage point tightening at next month’s policy meeting, as well as his remarks on a likely consecutive rate hikes this year.

  The US dollar index, a gauge of the greenback’s value against six major currencies, hit 101.33, the highest since March 2020. Overall, it increased 0.54 percent to 101.12, gaining 0.61 percent from a week earlier. It has risen 5.7 percent so far this year.

  “The macro fundamentals are still pointing to a higher dollar as short-term Treasury yields vs comparable maturity on sovereign yields are positive and inflation is high globally,” said Stan Shipley, fixed income strategist at Evercore ISI in New York.

  

  Japanese ￥10,000, US$100 and 100 euro banknotes are pictured in Tokyo on Friday.

  Photo: AFP

  “These macro drivers work well until the dollar reaches a level where economic growth is significantly impaired and the credit worthiness of US government debt is suspect,” Shipley added.

  Powell on Thursday said a half-point interest rate increase “will be on the table” when the US central bank meets on May 3 and 4.

  Fed funds futures have started to price in a third 50-basis-point hike in July, after the same increase next month and in June, and nearly 250 basis points of cumulative increases this year.

  “Even if the Fed does back-to-back-to-back 50 basis-point hikes, that’s still at a rate that is at the bottom end or below neutral,” said Calvin Tse, head of Americas Developed Markets Strategy (FX, Rates, Equities) at BNP Paribas in New York.

  “They likely don’t feel that it’s excessive tightening, because even after these hikes are put in place, policy will still be loose, still accommodative,” Tse said.

  Across the Atlantic, the euro fell 0.4 percent to US$1.0792, after European Central Bank (ECB) officials sent mixed policy signals.

  ECB President Christine Lagarde struck a dovish tone on Thursday by saying the central bank might need to cut its growth outlook a day after ECB Vice President Luis de Guindos joined some policymakers in calling for an early end of the bank’s asset-buying scheme coupled with a rate rise in July.

  Sterling fell against the US dollar to its lowest since November 2020 after sales data and recent Bank of England comments signaled a possible slowdown in the expected rate hike path.

  The pound fell 1.5 percent against the US dollar to US$1.2832, after hitting US$1.2830, the lowest since October 2020.

  In Taipei, the New Taiwan dollar declined against the greenback, losing NT$0.051 to close at NT$29.260, down 0.49 percent for the week.

  Against the yen, the US dollar rose 0.2 percent to ￥128.55.

  Since the beginning of the year, the yen has lost more than 10 percent of its value against a resurgent US dollar. A weak yen has raised the cost of import prices such as commodities, which are still priced in US dollars.

  Traders overall remained wary of intervention from Japanese monetary officials to strengthen the yen.

  Japanese television broadcaster TBS reported on Friday that Japan and the US likely discussed the idea of coordinated currency intervention to stem further declines in the yen during a bilateral finance leaders’ meeting.

  Japanese Minister of Finance Shunichi Suzuki described recent yen falls as “sharp,” and said he agreed with US Secretary of the Treasury Janet Yellen that they should communicate closely on currency moves.

  Additional reporting by CNA, with staff writer
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