Latest News

Powell’s Resolve to Raise Rates Spells Further Dollar Strength

© Reuters

(Bloomberg) — Federal Reserve Chair Jerome Powell’s vow to contain inflation with higher interest rates is holding, and that may boost the dollar.

The two-year Treasury note yield surged 17 basis points on Wednesday after Powell backed a quarter-point rate hike this month despite uncertainties stemming from Russia’s invasion of Ukraine. Although yields fell across the curve in Asia on Thursday, overnight-indexed swaps price in more than five Fed rate hikes this year, in stark contrast with the prospect of continued accommodative policy in the euro zone and Japan.

“U.S. inflation is unlikely to accelerate further from here, while the policy rate and bond yields will rise, so real yields have entered a sustained upward trend,” said Koji Fukaya, a fellow at Market Risk Advisory in Tokyo. “The dollar will go up.”

The U.S. currency’s track record in largely following differentials in inflation-adjusted 10-year yields is a good indicator of strength ahead. Over the past two years, the Dollar Index has tracked the gap in yields between the U.S. and the gauge’s members, excluding Switzerland, according to data compiled by Bloomberg. That spread has widened almost half a percentage point this year, while the dollar gained about 2%.

Fukaya sees the Dollar Index rising another 1.5% to 99 this year, compared with 97.524 on Thursday.

U.S. inflation, as measured by the personal-consumption expenditures index, probably will peak at an annual 5.6% in the January-March period before slowing to 3% in the fourth quarter, economists forecast.

©2022 Bloomberg L.P.

Powell’s Resolve to Raise Rates Spells Further Dollar Strength

Disclaimer:Fusion Mediawould like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

What's your reaction?

In Love
Not Sure

You may also like

Leave a reply

Your email address will not be published. Required fields are marked *

More in:Latest News