Amid Big Rate Hikes, Dollar Edges High

Amid Big Rate Hikes, Dollar Edges High

As markets priced in significant interest rate increases by the European Central Bank and the U.S. Federal Reserve, the euro regained parity on Tuesday. Tuesday saw the dollar rise, although it was still below the 20-year top it had set the day before (ECB).


The Fed has aggressively increased interest rates to control inflation that has reached decades-high levels, and the economic data released on Tuesday gave the Fed little reason to stop back. The dollar now has more worth as a result of this. According to a poll, the United States’ job advertisements unexpectedly grew in July despite two consecutive quarters of falling gross domestic product, even if the preceding month’s figures had been sharply upwardly revised.


Edward Moya, a senior market analyst at Oanda, mentioned that this is one essential feature of the labor market that will enable the Fed to justify rapid rate hikes. If Americans have options for work, the Fed can ignore the rapid decline in the other economic indicators.


What To Expect?

Other data showed a stronger-than-anticipated rebound in U.S. consumer confidence in August after three straight monthly declines, which may be a positive sign for by consumeeconsumer spending.


Traders increased their bets on the possibility that the Fed will raise interest rates by 75 basis points for a third consecutive month, going from around 66.5% to 74.5%, roughly an hour before Tuesday’s U.S. economic numbers release. The dollar index reached a high of 109.48 on Monday, its highest level since September 2002, and was up 0.074% at 108.73 at 3:00 p.m. Eastern time.


When Chairman Jerome Powell said at the Jackson Hole conference in Wyoming on Friday that the central bank will hike rates and keep them high for some years, it shattered the hopes of traders who had wagered the Fed would switch to a more accommodating approach early in 2023.


Simon Harvey, a Monex Europe FX market analyst explained that after Jackson Hole, the dust is slowly settling, and markets are wondering what will alter the story. Another rationale is that since Friday is payroll, we’re witnessing a consolidation of last week’s action.