Dollar Reaches Two-Year high
New York, NY, April 21, 2022-The dollar is reaching fresh nearly two-year highs, lifted by looming interest-rate increases from the Federal Reserve, strong U.S. growth and geopolitical jitters overseas, reports the Wall Street Journal.
“The Wall Street Journal Dollar Index, which measures the U.S. currency against a group of 16 others, has climbed in 13 of 15 sessions to its highest levels since May 2020. The dollar has gained more than 10% versus the Japanese yen this year and more than 5% against the euro. The index slipped 0.6% Wednesday.
“This year’s climb brings the dollar back toward levels hit during the pandemic market panic of March 2020, when investors world-wide piled into the currency, causing a global shortage and intervention from the Fed. It boosts profits at companies that import goods from abroad, and the purchasing power of consumers buying from overseas. It also threatens to hurt multinationals by making their products less competitive abroad, while increasing the cost of converting foreign revenues into the U.S. currency.
“One major factor lifting the dollar: expectations that U.S. growth will outpace the recovery elsewhere, with the Fed signaling a rapid course of interest-rate increases to tame inflation.
"U.S. government bond yields have jumped to multiyear highs as investors brace themselves for the most-aggressive pace of rate increases in more than 15 years. Market-based measures show investors expect the Fed will lift its benchmark federal-funds rate to 3% by year-end, and higher rates tend to attract yield-seeking investors to a currency.
“‘The dollar typically performs in two extremes: in a scenario of risk aversion, or in a scenario where the U.S. is a clear outperformer,’ said Kristen Macleod, co-head of global foreign exchange sales at Barclays. ‘What we have seen over the past couple of months-since the Russia-Ukraine conflict kicked off-is the dollar is benefiting from a bit of both.’”