Dollar: Dollar set for sparkling week as bullish expectations rise

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SINGAPORE: The dollar was heading for its best week in seven months on Friday after breaking key levels against the euro as traders assessed a year of aggressive U.S. interest rate hikes.

Federal Reserve Chairman Jerome Powell has placed bets on five or more hikes this year after leaving the door open on Wednesday to a faster rate hike than in previous cycles.

Data showing the best annual US growth in nearly four decades didn’t hurt either.

Overnight, the euro fell nearly 0.9% to a 20-month low of $1.1131, the yen fell 0.6% and the Australian and New Zealand dollars fell more than 1%.

For the week so far, the dollar has gained 1.7% against the euro,

2% or more on the Antipodes and the US Dollar Index rose above 97 for the first time since July 2020. It last stood at 97.250.

“So much for all those analysts who rushed to conclude that the dollar’s rally was over, following the early-year divergence between US interest rates (up) and the dollar (down),” he said. said Ray Attrill, head of foreign exchange strategy at National Australia Bank.

The greenback also surged against the yuan on Thursday — its best session in seven months — as slowing industrial profit growth in China bolstered the case for monetary easing there.

Fed funds futures have risen in price in as many as five U.S. hikes this year, with some analysts predicting six.

Movements were modest in early Asian trading, leaving the yen at 115.40 to the dollar and the Aussie at $0.7029. Next support for the Aussie is the December low at $0.6994.

The New Zealand Dollar was kept under pressure and hit a fresh 15-month low at $0.6570.

The pound was pushed to a one-month low of $1.3360 overnight and hovered at $1.3385 as traders focus on a Bank of England meeting next week. The interest rate markets have assessed the chances of a rise at 90%.

The European Central Bank and the Reserve Bank of Australia will also meet next week and some analysts see the surge in the dollar starting to wane as economies and central banks around the world emerge from the pandemic over the course of the ‘year.

“The dollar is on cycle highs and needs to go higher as rate differentials and increased levels of market volatility provide support. But this is the latest leg of the move,” said Societe Generale strategist Kit Juckes. .

“As the global economy emerges from the worst of the COVID pandemic this year, market attention will shift to monetary policy normalization and growth outside of the U.S. and better currency returns in the second half of this year will likely come from outside the larger developed economies.”

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