Strong US dollar hits 5-week high, market price in 75 bps Fed rate hike for June – Economics Bitcoin News
While precious metals, stocks and cryptocurrencies saw sharp declines this week, the US dollar hit a 20-year high against the Japanese yen and a host of other currencies. The greenback posted five straight weeks of gains after the US Federal Reserve raised interest rates by 50 basis points on Wednesday.
Greenback surges higher amid economic uncertainty
The US dollar hit a two-year high and a 20-year high against the Japanese yen last week ahead of the US Federal Reserve’s rate hike. Economic concerns are linked to the ongoing and strict Covid-19 lockdowns in China and the war between Ukraine and Russia. Beijing could reportedly plan to test 20 million people en masse for Covid-19 and the Chinese capital could go into lockdown.
US dollar currency index on May 6, 2022.
Additionally, Refinitiv data suggests that the market is predicting a 90% chance the Fed will hike 75 basis points in June. A majority of financial institutions and market participants correctly predicted Wednesday’s 50 basis point rise. Futures markets forecast the probability of a 75 basis point hike in June is around 75%.
Statistics show that the US Dollar Index (DXY) hit a 20-year high against a basket of international fiat currencies over the past week. After hitting a 20-year high against the yen, sterling saw the biggest impact against the greenback. Kit Juckes, a currency strategist at Societe Generale SA, says the US dollar is having a knock-on effect.
“The dollar rally is like an uphill avalanche,” Juckes said on May 4. “Just as an avalanche picks up snow, rocks, trees and everything else in its path as it slides down a mountain, the dollar rally has the aftermath of more currencies weakening. However, a broad move tightens global monetary conditions and so economic downside risks are growing.”
A strong nonfarm payrolls and employment report could change the Fed’s decision
Investors believe that the recently released Nonfarm Payrolls (NFP) report may influence the Fed’s next rate hike decision. “A strong payroll report could perversely lead the market to price in further tightening as the Fed reduced its optionality at its last meeting,” analysts at TD Securities said in a statement on Friday. TD Securities analysts added:
This leaves a resilient USD against the EUR and Yen as the path of least resistance. Weaker wage pressures should help ease tensions temporarily, but this will be short-lived until signs of a spike/moderation in CPI emerge.
The combination of a strong dollar and the recently released NFP numbers could see the forecast 75 basis point rate hike materialize. While it’s still uncertain, analysts at ANZ Bank believe it could be the case. “While the Fed is not currently considering a 75 basis point rate hike, this forecast is based on expectations that trend growth in monthly nonfarm payrolls will slow and core inflation will stabilise. But there is no guarantee at all that this will be the case.” Researchers at ANZ Bank concluded:
Demand for labor in the US remains very strong and core services inflation is rising steadily. The April Nonfarm Payrolls and Employment Reports – [will] carry a lot of meaning.
tags in this story
50bps, 75bps, Analysts, ANZ Bank, Beijing, China, Covid-19 Lockdowns, Fed, Federal Reserve, Greenback, Kit Juckes, NFP Report, Nonfarm Payrolls, Payrolls, Rate Hike, Refinitiv Data, Societe Generale SA , Strong Dollar, Analysts from TD Securities, War between Ukraine and Russia, US Dollar, USD, USD vs. EUR
What are your thoughts on the strong dollar and the possibility of the Fed raising interest rates by 75 basis points? Let us know what you think about this topic in the comment section below.
Jamie Redman
Jamie Redman is the news director at Bitcoin.com News and a Florida-based financial technology journalist. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for bitcoin, open source code and decentralized applications. Since September 2015, Redman has written more than 5,000 articles for Bitcoin.com News about today’s emerging disruptive protocols.
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