US Dollar Hits 20-Year High as Markets Avoid Risk

Image showing US dollar bills

Igor Golovnov |SOPA Images| Light Rocket via Getty Images

The US dollar hit a new 20-year high on Monday as risk-off sentiment stemming in part from concerns about the Federal Reserve’s ability to combat high inflation boosted the dollar’s safe-haven appeal.

The dollar has risen for five straight weeks as US Treasury yields have risen on expectations that the Fed will be aggressive in its bid to rein in inflation.

On Monday, Minneapolis Fed President Neel Kashkari said the US central bank may not get as much help from loosening supply chains as it hopes to help cool inflation. Atlanta Fed President Raphael Bostic said he already sees signs of peak supply pressures and that should give the Fed room to raise interest rates by half a percentage point over the next two or three policy meetings, but nothing bigger.

Also contributing to the defensive tone was the ongoing war in Ukraine and concerns about rising COVID-19 cases in China.

“Right now, it looks like there’s a trifecta of drivers here that will continue to provide the dollar with a strong base,” said Edward Moya, senior market analyst at Oanda in New York.

“There is a belief that none of the major risk factors will be resolved, definitely not this week, and that will probably complicate the end of the dollar’s reign.”

The dollar index fell 0.135% to 103.630 after hitting 104.19, its highest level since December 2002, with the euro rising 0.15% to $1.0567.

The Fed last week raised rates by 50 basis points in its bid to reduce inflation without tipping the economy into recession, while a strong jobs report on Friday cemented expectations of more rate hikes. Investors will see more inflation readings later this week in the form of consumer price indices and producer prices.

Yields on most US Treasuries trimmed early gains to trade lower on Monday as bargain hunters stepped in after the benchmark 10-year yield hit new three-year highs. and a half of 3.203% as fears of inflation continued to affect the markets.

On Wall Street, stocks traded sharply lower as growth stocks were weighed down again by rising Treasury yields, although major averages were off their worst levels for the day after hitting new year lows. .

Markets are fully pricing in a rate hike of at least 50 basis points by the Fed at its June meeting, according to CME Group FedWatch Tool.

The Japanese yen strengthened 0.24% against the dollar at $130.28 per dollar, while the British pound was last trading at $1.2343, up 0.05% on the day.

In cryptocurrencies, Bitcoin last fell 14.93% to $30,679.52 after falling as low as $30,321, its lowest level since July 21, 2021.

Ethereum last fell 16.21% to $2,266.33.

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