Dollar holds near multi-month high after Fed's hawkish tilt
The dollar held near multi-month peaks against other major currencies on Monday, following the U.S. Federal Reserve surprised markets the other day by signalling it would raise interest levels and end emergency bond-buying earlier than expected.
The dollar index, which tracks the greenback against six major currencies, stood at 92.232 after gaining 1.9 % the other day, its biggest rise since March 2020.
On Friday, it jumped above key resistance around 91.95, marking a 61.8 per cent retracement from its decline to 89.53 earlier this month from an April peak of 93.439.
"Like many, I had expected the 61.8 Fibonacci retracement in the dollar index to carry for a bit ... and at least see some consolidation," said Chris Weston, the top of research at Pepperstone Markets Ltd, a foreign exchange broker based in Melbourne.
"That wasn't to be, and it appears technical resistance means hardly any when this sort of re-positioning event plays out."
The euro traded at US$1.1872, having hit a 2 1/2-month low of US$1.1847 on Friday.
The British pound fetched US$1.3809, standing near Friday's two-month low of US$1.3791.
The Australian dollar wobbled at US$0.7503, having dropped to only US$0.7478, a low last observed in December.
The safe-haven yen held firmer as the Fed's tilt hit risk asset prices. It ticked up to 110.185 yen to the dollar, pulling from Thursday's 2 1/2-month low of 110.825
The jolt to foreign exchanges was triggered on Wednesday by Fed forecasts showing 13 of the 18-person policy board saw rates rising in 2023, versus only six previously, with the median board member tipping two hikes in 2023.
Investors' risk appetite took another hit after St. Louis Federal Reserve President James Bullard said on Friday that the U.S. central bank's shift toward a faster tightening of monetary policy was a "natural" response to economic growth and particularly inflation moving quicker than expected as the united states reopens from the coronavirus pandemic.
"The Fed's latest dot plot was a meaningful surprise. In a scenario where markets continue steadily to move Fed pricing in a hawkish direction, we're able to envision the euro/dollar falling yet another 2 %, if European rates remain about unchanged," wrote analysts at Goldman Sachs.
However they also noted they don't expect a sustained dollar either, noting that other central banks should consider policy normalisation as their economies get over depressed levels.
In cryptocurrencies, bitcoin stood at US$35,689, while ether changed hands at US$2,241, both paring losses made during the weekend to stand little changed from Friday's closing levels.
Source: www.channelnewsasia.com
