Dollar floats as markets brace for faster rate hikes

The dollar rose to multi-week highs against other currencies on Thursday with the possibility of rate hikes.

It appeared supported by the prospects for quicker and more significant interest rate hikes in the months ahead.

As London trade opened, the dollar index maintained its highest levels since December. The euro declined at two-month lows of $1.11931. The greenback hit its highest levels against the New Zealand dollar. It also hit a seven-week peak against the Aussie.

It rose broadly against arising market currencies as money markets moved to five Federal Reserve rate rises this year.

The Fed ended a two-day meeting on Wednesday, and Fed chief Jerome Powell said the central bank was thinking to begin hiking in March to bit inflation.

Powell stressed that they were answering whether the central bank would consider a 50-basis point hike. He replied without leading it out.

Instead, he said that the economy seemed more robust than in the most recent hiking cycle and inflation. In his opinion, it was necessary to raise rates without “threatening” the labor market.

Later on Thursday, U.S. gross domestic product figures show annual growth at its strongest since 1984.

Head currency strategist at Rabobank, Jane Foley, said that many people assumed that the Fed might be more sensitive to the equity market. In the meantime, the market had already appeared priced for hikes. He added that the Fed’s mention of the balance sheet had focused on the withdrawal of stimulus.

Overview of the currencies after possible rate hikes

The dollar’s overnight jump of 0.8% against the yen marked its sharpest in two months. In the meantime, Treasury yields hit higher, while stock markets took a fresh beating.

The dollar index was last at 96.826, maintaining near its highest levels since December.

The risk-sensitive Aussie was last down about 0.6% at $0.7078, falling to as low as $0.7065. The New Zealand dollar declined 0.8% to $0.6598, a nearly 14-month trough.

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