LONDON/TOKYO: After surging the previous day, the dollar was little changed on Friday as traders analysed a slew of central bank rate hikes and considered the possibility that borrowing costs may yet rise. In early European trading, the euro was trading at $1.063, unchanged against the dollar.
Following a 0.5% decline on Thursday due to the European Central Bank’s (ECB) announcement that it was far from done rising interest rates, investors fled to the safe-haven dollar on Friday.
The previous day, Jerome Powell, the chair of the Federal Reserve, stated that policymakers anticipated that U.S. interest rates will increase further and continue to rise.
A sell-off in global stocks and European bonds occurred on Thursday and Friday as a result of traders rethinking their wagers that the pain of increasing interest rates may soon end due to central banks’ “hawkish” language.
Alvin Tan, head of Asia FX strategy , noted that because of yesterday’s significant risk-off, the dollar normally benefits from its status as a safe-haven asset.
Despite yesterday’s price action, the market is currently inclined to sell dollars in the near term, but as the new year approaches, we believe that trend may change as a result of the slowing global economy.
The index has increased by around 9% this year as a result of the Fed’s sharp hikes in interest rates, which have drawn capital back to bonds denominated in the dollar.
However, it has decreased by almost 8% since reaching a 20-year high in September as expectations for the Fed’s rate-hiking cycle to stop soon have grown due to a slowing in U.S. inflation.
