TOKYO- The US dollar hovered near its highest point in 17 months against major peers on Monday after Federal Reserve officials signaled a first pandemic-era interest rate increase could come as early as March.
The euro sank with the British pound after the Netherlands went into lockdown on Sunday and Britain’s health minister declined to rule out further restrictions before Christmas amid the rapid spread of the Omicron coronavirus variant.
Although COVID-19 restrictions cloud the outlook for economic growth, they also risk keeping inflation elevated and turning central banks more hawkish.
Fed Governor Chris Waller, a known hawk, said on Friday that he thought a rate increase in March would be “very likely” and that the central bank could start to run down it balance sheet in mid-2022. Meanwhile, erstwhile dove Mary Daly, president of the San Francisco Fed, refused to rule out a March increase and voiced support for as many as three increases next year.
The Fed’s rapid hawkish tilt combined with Omicron’s troubling spread intensified a risk-off mood, which led investors to squirrel away their capital in safe havens, including Treasuries and the dollar, with moves exacerbated by year-end profit taking, said Ken Cheug, chief Asian foreign-exchange strategist at Mizuho Bank.
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