Dollar index slips from 20-year high, Fed rate path in focus
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THE dollar slipped against a basket of currencies on Friday (May 6) after 2 volatile days as investors focused on how aggressive the Federal Reserve might be in hiking rates as it tackles rising inflation.
The dollar index hit a 20-year high overnight on safe-haven demand, following Thursday’s sharp stock sell-off driven by concerns about the Fed’s aggressive tightening and as European currencies weakened on worries about growth in the region.
It retraced some of these gains, however, as investors evaluated how much of the Fed’s hawkishness was already priced into the greenback, and as some analysts suggested that inflation may be nearing a peak.
The dollar index hit 104.07, the highest since December 2002, before falling back to 103.64, down 0.09 per cent on the day.
The Fed will have to raise interest rates more aggressively and risk a recession if supply chain issues don’t begin to ebb, Minneapolis Fed president Neel Kashkari said on Friday.
The next major US economic focus will be consumer price inflation data on Wednesday. This is expected to show that price pressures rose at an annual pace of 8.1 per cent in April, just below March’s reading of 8.5 per cent, according to the median estimate of economists polled by Reuters.
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The euro also got a boost on Friday by relatively hawkish comments from European Central Bank (ECB) officials. The ECB should raise its deposit rate back into positive territory this year, French central bank chief Francois Villeroy de Galhau said, comments that point to his support for at least 3 rate hikes in 2022.
The euro was last at US$1.0547, up 0.08 per cent on the day, after earlier falling to US$1.04830. It is holding just above a 5-year low of US$1.0470 reached on Apr 28.
Sterling fell to its lowest level since June 2020, a day after the Bank of England raised interest rates to their highest since 2009 but warned that the economy was at risk of recession. The British currency was last down 0.20 per cent at US$1.2331, after dropping to US$1.2276.
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