Fri, December 09, 2022

The Dollar Is Rising, Is This Long Term?


On Thursday, the dollar climbed as U.S. Treasury rates rose as investors watched for aggressive remarks from Federal Reserve officials. At the same time, the British pound dropped due to investors’ dissatisfaction with the U.K. government’s most recent budget.

The dollar recovered a touch after sliding in recent weeks as speculation that the U.S. central bank will soon limit the rate of interest rate increases was fueled by inflation statistics and Fed members’ comments. However, the Fed President displayed a chart at a presentation on Thursday that suggested even dovish assumptions would call for the central bank’s policy rate to increase to at least around 5%. In contrast, tougher assumptions imply it would be beyond 7%. After many swift increases, the federal funds rate is now between 3.75% to 4.00%.

Experts’ Analysis of the Market

Senior market analyst Joe Perry of and City Index in New York also cited Fed Chair Jerome Powell’s emphasis on the terminal rate rather than the rate of rises. Perry believes there is a chance for a comeback to 109.25 or so in the dollar index before rolling over and going lower, even though he expects the dollar will decline over the long run.

Conversely, the euro may draw back to $1.01 and then bounce higher as well. Bullard commented a day after Mary Daly, the president of the San Francisco Fed and formerly one of the more dovish officials, contributed to skepticism about a change in course from the central bank by stating that a halt was not an option.

Bullard’s presentation was “quite hawkish,” according to Brad Bechtel, global head of F.X. at Jefferies, who also pointed out that the increase in U.S. Treasury rates on Thursday supported the dollar. Bechtel noted the pounding movement on Thursday and stated that investors worried about the U.K. finance minister Jeremy Hunt’s budget, which featured tax rises and stricter public expenditure targeted at reducing inflation and improving the nation’s economic standing.


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