The US dollar has continued to gain value for another week, absolving it from its losses in 2023. The greenback’s change of direction is due to increasing bets for more rate hikes from the Federal Reserve.
The Dollar Index is on track to achieve its third consecutive weekly gain. This is the longest series of victories since September. Knowledgeable traders in Europe who choose to remain anonymous have reported that real money has been used to purchase the currency this week, particularly against the euro and the yen.
Investors have reconsidered their attitudes towards rates due to positive US economic data and an assertive stance from Federal Reserve officials. This caused an increased interest in the US dollar. Subsequently, traders are now anticipating about 68 basis points of further hikes by June, up from 59 at the end of last week.
Experts weigh in on implications for dollar markets
Thomas Barkin is a Richmond Fed President. He recommends a 25 basis-point step in rate increases since it gives policymakers the freedom to respond. Due to inflation still soaring high, officials are advised by Fed Governor Michelle Bowman to continue raising rates until they observe further progress.
Two of the Fed’s most combative policymakers recently suggested that they may support returning to more significant rate increases to subdue inflation. Furthermore, recent data indicated an unexpected, massive surge in producer prices. This further emphasizes the nagging inflationary pressures that are increasing expectations of a peak in federal rates.
Viraj Patel is a strategist at Vanda Research in London. According to him, this serves as a warning to those who maintain a pessimistic outlook on the greenback. Patel stated that investors had given too much credit to the Federal Reserve’s dovish shift and the global economy outperforming that of the US. Consequently, this led to a decline of over 2.5% this year.
HSBC strategists do not believe that the US dollar’s surge will persist for long. They expect a new decline to transpire in the second quarter. Moreover, some uncertainties, such as concerns over Fed’s hiking plans, ease off.
Meanwhile, RBC BlueBay Asset Management vouches for using the dollar’s rebound to increase long positions on the Japanese yen. The Japanese currency plummeted to its lowest point against the US Dollar since December on Friday.