USD Rising Towards Multi-Month High Following Fed Boost

On Monday, June 21, the USD rose in early European trade as it climbed toward a multi-month high after the US Federal Reserve announced an interest rate hike.

The US Dollar Index, which trails the greenback in opposition to its six rival currencies, surged 0.1% at 92.267. It is the highest mark since April 2021 after gaining 1.9% last week. That was its largest weekly increase since March 2020.

The USD/JPY pair traded 0.3% lower at 109.84 while EUR/USD hopped to 1.1867, which is higher than Friday’s two-month low.

Meanwhile, the risk-sensitive AUD/USD and the NZD/USD smashed 0.2% to 0.7494 and 0.29% to 0.6953, respectively.

USD/CNY also rallied 0.25% to 6.4689 as the People’s Bank of China maintained its loan prime rate flat at 3.85% earlier in the day.

Elsewhere, the GBP/USD traded 0.1% lower at 1.3801, just above its two-month low last Friday. The currency pair also weighs on the fast growth of the new coronavirus variant and the delay of the kingdom’s full border reopening.

On the brighter side, Fitch Ratings improved its view of the UK sovereign debt from negative to stable on Friday. It said that the country’s economy has proved stronger than expected.

On Thursday, the Bank of England will release its own monetary policy decision. On the same day, the European Central Bank President will also address the European Parliament.

Investors are expecting that the central bank will keep its current monetary policies. However, the inflation in the kingdom surged over its 2% goal in May for the first time in two years.

Fed Hawkish Direction

The catalyst for the US dollar’s soaring move was the hawkish decision of the Fed last week which reacted to the strong economic data and inflation surge. The majority of policymakers are expecting a two-interest rate hike of 25 basis points in 2023. It is a year earlier than expected, but seven of the 18 members said the first increase might come as early as next year.

In an interview with St. Louis Fed President James Bullard stated that the US central bank’s hike in interest rate might start in late 2022.

In addition, Fed Chief Jerome Powell said that the member of the Federal Open Market Committee started the talk of halting the bank’s massive bond-buying program. Due to this, short-end yields climbed higher. However, the longer-end rates were down as traders played down the long-term US inflation risk.