The U.S. Dollar Index, DXY, rose almost 0.7% on Friday to 101.25, a level that was last seen in March 2020 when investors worldwide piled into the greenback during the onset of the COVID-19 pandemic. The dollar is getting a lift from expectations that the Federal Reserve is about to start aggressively hiking rates to combat inflation, currently at its highest annual rate since 1981.
The U.S. Dollar is edging higher against a basket of major currencies Friday afternoon, hitting a more than two-year high. The main catalyst behind the greenback’s strength is supportive comments from Federal Reserve Chair Jerome Powell on Thursday.
In a speech at an International Monetary Fund (IMF) meeting, Powell implied his support for a half a percentage point tightening at next month’s policy meeting, as well as likely consecutive rate hikes this year.
The June U.S. Dollar Index is trading at 101.275, up 0.661. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) is at $27.05, up to $0.16.
More 50-basis Point Fed Rate Hikes to Come:
Powell on Thursday said a half-point interest rate increase “will be on the table” when U.S. central bankers meet on May 3-4.
Fed funds futures have started to price in a third 50-basis-point hike in July, after the same increase in May and June, and nearly 250 basis points of cumulative increases in 2022.
Global cues were weak as the likelihood of slowing economic growth on the back of aggressive monetary policy tightening, recent development in Ukraine, and lockdowns in Shanghai led global markets towards ending in red for the second week in a row.
Hawkish comments from the US Fed chairman signaling more aggressive policy tightening in its next policy meeting led to a jump in the 10-year US Treasury yield and the dollar index. This, followed by the European Central Bank (ECB) Vice President acknowledging the possibility of a rate increase in July – potentially the bank’s first in 12 years – kept investor sentiments subdued.
Dollar Index Long (Buy)
Enter at: 101.384