Dollar has been hitting a six-week high
Strong bets are that US interest rates will be hiked four times this year
THE DOLLAR hit a six-week high yesterday, supported by what was perceived as an upbeat tone from new Federal Reserve chief Jerome Powell on the US economy, bolstering bets that interest rates will be hiked four times this year in the US. In contrast, soft inflation data in the euro zone dented expectations that the European Central Bank (ECB) will dial back its stimulus this year, slamming the euro to sixweek lows against the dollar and a six-month trough against the yen.
Data yesterday showing the currency bloc’s manufacturing boom slowed a little further last month added to a downbeat mood, nudging the euro down close to its low of $1.21835.
The dollar index climbed to 90.744 points, with Powell’s optimism on the economy in his first public testimony as Fed chairperson suggesting the US central bank is going to raise interest rates one more time than the three hikes markets had expected.
“Hawkish comments from Powell have fuelled market speculation of the Federal Reserve raising US interest rates four times this year – ultimately supporting the dollar,” said Lukman Otunuga, research analyst at FXTM.
Powell was to continue his testimony to the US Congress later in the day. In contrast, ECB president Mario Draghi has said slack in the euro zone economy may be bigger than previously estimated.
“Draghi wasn’t that aggressive when he spoke earlier this week, so there is a clear contrast,” said Bart Wakabayashi, Tokyo branch manager at State Street.
Against the yen, the single currency fell to ¥129.86, its weakest since early September and down 5.6 percent from its 2½-year high hit just a month ago.
The euro was also hurt by political uncertainties as Italians are preparing to vote in a national election on Sunday, while the leading political parties in Germany decide on a coalition deal that would secure Angela Merkel a fourth term as chancellor.
The dollar index is still down 1.5 percent this year, dogged by suspicions that the Trump administration prefers a weaker dollar to mend its bulging trade deficit, and worries its big tax cuts and spending plans may boost fiscal deficits to an extent that they undermine confidence in US debt.
The Australian dollar hit a two-month trough versus the dollar and a nine-month low versus the yen after data on Australian business investment showed a 0.2 percent dip for the December quarter, missing forecasts for a 0.9 percent increase. – Reuters