Dollar index hits two-month high on rising rate bets
Business
Dollar index hits two-month high on rising rate bets
SINGAPORE (Reuters) - The US dollar hit a two-month high on Tuesday in line with higher Treasury yields after hawkish comments from Federal Reserve officials led investors to position for the possibility of further rate hikes.
Regional Fed Presidents James Bullard and Neel Kashkari on Monday indicated that the US central bank may need to continue hiking rates if inflation remains high.
“The focus is slowly going back towards inflation and all this hawkish Fed speak we’ve been getting and that’s been giving the dollar some support here,” said Edward Moya, senior market analyst at OANDA in New York.
The comments come after statements by Fed Chair Jerome Powell on Friday were viewed as being dovish.
“We’ve been getting a steady dose of hawkish Fed pushback, but not really from Fed Chair Powell,” Moya said, adding that minutes from the Fed’s May meeting due on Wednesday will be watched for any further signs of his thinking.
Powell said on Friday that it is still unclear if rates will need to rise further, as central bank officials balance uncertainty about the impact of past hikes in borrowing costs and recent bank credit tightening with the fact that inflation is proving hard to control.
Traders have ramped up bets that the Fed funds rate will stay elevated, with markets pricing in almost a 30% chance of a rate hike in June and the Fed funds rate seen at about 4.75% in December.
The dollar index, which measures the US currency against a basket of major peers, reached 103.65, the highest since March 20, and was last at 103.33.
The greenback also rose to 138.91 against the Japanese yen, the highest since Nov. 30, before falling back to 138.35.
The euro slipped 0.18% to $1.0794. It is holding just above a two-month low of $1.0760 hit on Friday.
Eurozone data on Tuesday showed that business growth slowed slightly more than thought this month.
Investors are also focused on when Congress will raise the US debt ceiling. White House and congressional Republican negotiators will meet again on Tuesday to resolve a months-long impasse over raising the government's $31.4 trillion debt limit.
"Markets are still expecting some sort of deal to be reached," said Niels Christensen, chief analyst at Nordea. "An agreement should spark some more risk-on sentiment which could be negative for the dollar."
