On Monday, the US dollar climbed to a high of two decades against a basket of major currencies, as concerns about steep hikes in the interest rate by the US Federal Reserve and global slowdown in the economy gave it a boost.
Global Markets Tumble
The week began with global financial markets tumbling after the hotter-than-expected US inflation data, which delivered a major blow to risk appetite of investors and increased chances of an aggressive policy tightening. The stock markets all over the world were battered on Monday in the opening hours and here was a sell-off seen in government bonds as well.
Currency analysts said that the US dollar, considered a safe haven, continued to extend its gains because of lower risk appetite in the market. There was a 0.6% increase in the US dollar currency index, tracking the greenback against six major currencies, as it reached a value of 105.04. This put it past the highest value it has recorded since December 2002.
This week, traders have a lot to deal with, as there are policy meetings of several central banks scheduled. These include the Bank of England, the US Federal Reserve and the Swiss National Bank. It is widely expected that the Fed will increase the interest rate by 50 basis points in its meeting on Wednesday and some have even predicted that the rate hike might be by 75 basis points.
Analysts said that a hike of 75 basis points could come as a surprise for those who expected a 50 bps hike and such a move would push the dollar index even higher.
Yen Finds Support
The Japanese yen, which has taken quite a few beatings recently, had also reached new lows against the US dollar that had not been recorded since 1988. Therefore, it came as a surprise on Monday that the currency was able to advance against the greenback. The comments from a top spokesperson of the Japanese government that they were worried about the sharp decline in the currency and would step in gave the yen the boost it needed.
Market economists said that the tone of the government official about intervening because of the fall in the currency strengthened it. However, it is also a fact that intervention would only give the yen a fleeting respite and nothing more. The dollar had declined 0.1% against the yen on Monday to reach 134.25.
There was also a 1.7% decline in the Australian dollar, which is considered a proxy for risk appetite. There was also a decline recorded in Sterling, as it came down to a one-month low. This was because of data, which revealed that Britain’s economy had shrunk unexpectedly in April. The pound was also weighed down due to tensions because of the post-Brexit trade between the European Union and Northern Ireland. It saw the British currency fall by 1.74% and was trading at a value of $1.2146.