The dollar sank on Monday, retreating from a one-and-a-half-year high reached on Friday, as hawkish remarks by a Federal Reserve member over the weekend pushed the yield curve to its flattest levels in three months.
The Fed’s meeting last week signaled a rate hike in March. Hence, some investors believe officials are prepping the markets for a quicker pace of rate rises this year to keep inflationary pressures at bay. A faster rate rise is also depressing future growth prospects. This scenario is currently in the bond markets, where gaps between two and ten-year U.S. Treasury bonds have widened significantly.
In a process known as “bear-flattening,” Treasury rates dipped below 59 basis points for the first time since early November.
Fed’s Rate Hikes Impact on the Market
Though markets remain concerned about the impact of the Fed’s planned rate hike trajectory on GDP and inflation, some investors saw Fed Bostic’s new remarks as a chance to profit from the dollar’s recent surge. After surging to a mid-2020 high of 97.44 on Friday, the greenback fell 0.2 percent to 97.02 against a basket of competitor currencies. Last week’s 1.6 percent increase in the dollar was the greatest weekly gain since mid-2021. This year, long dollar holdings stayed near their all-time highs.
The Bank of England meets on Thursday, with a Reuters poll of analysts forecasting a second rate rise in less than two months as the BOE reverses additional monetary stimulus after inflation reached its highest level in almost three decades. On Thursday, the European Central Bank will hold a policy meeting. There shouldn’t be a policy change. However, commentators are beginning to warn that the ECB’s window for action will be narrowed as the Fed’s rate hikes near.
Bitcoin was trading above $37,000 in cryptocurrencies following a calm weekend for the digital currency.
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