Dollar Strengthens Against Rivals as Market Bets 50bps Rate Hike in May

In the the US session Friday, the greenback strengthened versus most of its key peers, as the US government rates increased amid rising anticipation that the Federal Reserve would tighten monetary policy forcefully to combat rising inflationary pressure. The 10-year Treasury note’s baseline yield jumped to 2.462%. Bond yields trend in the opposite direction of bond prices.

President Charles Evans of the Chicago Fed stated that he supports a 25bps rate increase at the Fed’s upcoming sessions through March 2023, but is “flexible” about a potential 50-basis-point boost. Given aggressive statements from Fed Chair Jerome Powell a few days back, investors are factoring in 50bps rate rises in both May and June.

US Vice President Joe Biden is visiting Poland, where he will engage with Polish President Andrzej Duda to address the refugee issue that has resulted from the conflict. The United States and the European Union (EU) achieved an agreement in Brussels to increase liquefied natural gas supply to Europe by the end of 2022.

The dollar index is now at 98.82, an increase from 98.79 from the prior closing. The dollar climbed versus a majority of its rivals temporarily as the US government rates increased on rising anticipations that the Federal Reserve would vigorously tighten monetary policy to combat excessive inflation. The United States and the European Union (EU) achieved an agreement in Brussels to increase liquefied natural gas supply to Europe by the end of 2022.

After aggressive statements from Fed Chair Jerome Powell a few days back, investors are factoring a 50 basis point rate increase in both May and June. President Charles Evans of the Chicago Fed revealed Thursday that he’s “fine” hiking rates in 25bps steps while still being “flexible” to a 50-basis-point hike if necessary. By the end of 2022, Evans forecasts six additional 25-basis-point rises in the Fed’s benchmark interest rate, with three more following year, bringing the Fed funds rate to a range of between 2.75% and 3% by the end of next year.

The National Association of Realtors reported that its pending home sales index fell 4.1 percent to 104.9 in February after falling 5.8 percent to an amended 109.4 in January. Economists had predicted a 1% increase in the index. Furthermore, updated statistics from the University of Michigan revealed that consumer sentiment in the United States decreased more than previously thought in March. The consumer mood index for March was amended on the lower side to 59.4 from an initial score of 59.7, according to the report. Economists had predicted that the index would remain unchanged.

With the surprise negative correction, consumer confidence fell to its lowest level since August 2011, when it touched 55.8. The dollar is trading at $1.0985 versus the euro, up from $1.0997. The dollar is up slightly against the pound sterling, trading at $1.3185 after falling to $1.3225 earlier Friday.