NEW YORK- The dollar extended its advance against a basket of currencies, building on the gains logged after the US Federal Reserve earlier this week surprised markets by signaling it would raise interest rates and end emergency bond-buying sooner than expected.
The dollar index, which tracks the greenback against six major currencies, was up 0.37 percent at 92.213, its highest since mid-April. That puts the index on pace for a weekly gain of nearly 2 percent, its best weekly jump in about 14 months.
The jolt to foreign exchanges was triggered on Wednesday by Fed forecasts showing 13 of the 18-person policy board saw rates rising in 2023, versus only six previously, with the median board member tipping two hikes in 2023.
Investors’ risk appetite took another hit after St. Louis Federal Reserve President James Bullard said on Friday that the US central bank’s shift this week toward a faster tightening of monetary policy was a “natural” response to economic growth and particularly inflation moving quicker than expected as the country reopens from the coronavirus pandemic.
“I think this is a direct echo of the 2013 taper tantrum. You are seeing a perceived shift in the Fed’s reaction function driving investors into the safety of the US dollar,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.