Dollar Edges Higher; Climbs to a New Two-Year High By


© Reuters.

By Peter Nurse – The U.S. dollar edged higher in early European trade Friday, trading at a two-year high and underpinned by the likelihood of sharp rises in interest rates by the Federal Reserve.

At 4:05 AM ET (0805 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 99.920, its best level since May 2020.

The index is up 1.2% this week, in the wake of the release of the of the Fed’s March meeting, which showed “many” participants were prepared to raise interest rates in 50-basis-point increments in coming months to combat inflation.

“The takeaway from the March Federal Open Market Committee (FOMC) minutes… was that the Federal Reserve seemed confident enough about growth and the labor market, but that inflation needed to be addressed—and fast,” said analysts at ING, in a note.

“It seems clear that the Fed would have opted to start the cycle with a 50bp hike were it not for the war in Ukraine.”

St. Louis Fed President James Bullard is on the hawkish side of the debate, and he stated Thursday that the central bank needs to raise the federal funds rate by another 3 percentage points by year’s end.

“I would like to get there in the second half of this year…We have to move,” to get ahead of inflation running at triple the Fed’s 2% target, Bullard said. “We are talking about bigger moves than we have made in a long time.”

On the flip side, fell 0.2% to 1.0855, at a new one-month low, after the European Union agreed to a ban of Russian coal, starting from August, as punishment for alleged atrocities by Russian troops on Ukrainian civilians, something denied by Moscow.

Fears of a new Russian offensive in eastern Ukraine are growing, with Ukraine’s Foreign Minister Dmytro Kuleba calling for Western countries to provide his country with more sophisticated weapons at a meeting with North Atlantic Treaty Organization counterparts in Brussels on Thursday.

The from the March meeting of the European Central Bank showed policymakers as keen to unwind stimulus, but the specter of a euro-area recession in the wake of Russia’s invasion could still cause the central bank to pause.

Elsewhere, rose 0.1% to 124.09, climbing to its highest level in over a week and approaching last month’s near seven-year high of 125.10.

fell 0.2% to 1.3043, edged lower to 0.7477, while inched higher to 6.3626.

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