NEW YORK- The US dollar index hit a five-week high and posted its biggest weekly gain since April 2020 on Friday as investors adjusted for the likelihood that the Federal Reserve will keep hiking rates to battle inflation.
The US central bank needs to keep raising borrowing costs to tame decades-high inflation, a string of its officials said on Thursday, even as they debated how fast and how high to lift them.
“They still have their work cut out for them and I don’t think the market was really positioned that way after the July FOMC,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto, referring to the Fed’s Federal Open Market Committee meeting. “It’s really all about getting inflation back to target.”
The dollar index rose 0.61 percent to 108.13, its highest since July 15, while the euro dropped 0.54 percent to $1.0033, its lowest since the same date.
The greenback gained 0.73 percent to 136.87 against the Japanese yen, the strongest since July 27. Sterling tumbled 1.03 percent to $1.1813 and had its biggest weekly drop against the dollar since September 2020.
The Fed is seen as having more room to hike rates than central banks of other large economies which are more fragile.
“For the USD to weaken meaningfully, the Fed has to get more concerned about growth than inflation, and we are not there yet,” Bank of America analyst Michalis Rousakis said in a report on Friday.
“Meanwhile, we expect the (European Central Bank) to stop hiking next year on concerns around growth and/or spreads. EUR is also exposed to the much worsened terms of trade and the slowdown in China,” Rousakis said.