Dollar Soars as Fed Announces High-Interest Rates

Dollar Soars as Fed Announces High-Interest Rates

The week started with the US dollar soaring through the roof. The safe haven briefly crossed its 20-year highs against multiple currencies as the Fed indicated high-interest rates for some more time.

According to Jerome Powell, the Federal Reserve Chair, the interest rates will help bring down inflation. Even the dollar index, a tool used to measure the dollar’s performance against other currencies, hit its two-decade peak at 109.48.

However, the index pulled back after the European session went on. It stayed firmly at 0.5% against the yen while the yuan crossed the benchmark of 6.9 per dollar. Several forex trading brokers noted that the pound also hit a new low against the dollar in the past two and a half years.

On the other hand, the euro gained some ground, lasting up to 0.3% at 0.9993 dollars. A major reason behind this was the comments of the European Central Bank, lifting expectations for a September rate hike.

Powell talked about the rate hikes at the central banking conference in Wyoming. With inflation running at 3x times the 2% ideal goal, the Fed will maintain the interest rates for some time.

The financial market amped up bets for an aggressive rate hike in the coming month. The chances of a 75-point hike have increased to 70% as the US Treasury yields surged. On the other hand, two-year bond yields have hit a 15-year high at 3.49% to bolster the greenback.

Similarly, the expectations for a euro rate hike in September also increased. Isabel Schnabel, the ECB board member, stated that central banks losing trust will lead them to curb inflation forcefully, even if it triggers a recession. 

As most central banks show hawkish tendencies, traders and investors keep a keen eye on the market to maintain their portfolios.

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