NEW YORK- The dollar surged to a more than two-year high on Friday, continuing to draw support from Federal Reserve Chair Jerome Powell’s comments on Thursday that seemed to back a half a percentage point tightening at next month’s policy meeting, as well as his remarks on a likely consecutive rate hikes this year.
The dollar index, a gauge of the greenback’s value against six major currencies, hit 101.33, the highest since March 2020, It was last up 0.6 percent at 101.16 the largest daily percentage gain since mid-March. So far this year, the dollar index has gained 5.7 percent.
“The macro fundamentals are still pointing to a higher dollar as short-term Treasury yields vs comparable maturity on sovereign yields are positive and inflation is high globally,” said Stan Shipley, fixed income strategist, at Evercore ISI in New York.
“These macro drivers work well until the dollar reaches a level where economic growth is significantly impaired and the credit worthiness of US government debt is suspect,” he added.
Powell on Thursday said a half-point interest rate increase “will be on the table” when US central bank meets on May 3-4.
Fed funds futures have started to price in a third 50-basis-point hike in July, after the same increase in May and June, and nearly 250 basis points of cumulative increases in 2022.
“Even if the Fed does back-to-back-to-back 50 basis-point hikes, that’s still at a rate that is at the bottom end or below neutral,” said Calvin Tse, head of Americas Developed Markets Strategy (FX, Rates, Equities), at BNP Paribas in New York.
