The dollar rises to its highest level in 20 years 2022-04-28 09:12:22

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The US dollar rose to a two-decade high on Thursday as investors ramped up their bets that sharp interest rate increases from the Federal Reserve will leave other major central banks trailing in their wake.

The dollar index, a measure of the US currency’s strength against a basket of other developed world currencies including the euro, yen and pound, rose 0.9 percent to just under 104, its strongest level since 2002.

Thursday’s move brings the dollar’s gains to more than 8 percent this year, as markets set for a growing gulf of monetary policy between the United States and other major economies.

The immediate catalyst for this move came from the Bank of Japan, on Thursday confirmed his intention To resist the global trend toward tighter monetary policy by sticking to its promise to keep bond yields close to zero.

The euro The Pound also suffered as investors increasingly began to question whether the European Central Bank and the Bank of England would be able to raise interest rates much this year, with the energy-importing economy in the Eurozone being threatened by higher oil prices and the fallout from Russia. Invasion of Ukraine.

The European single currency fell to a five-year low of $1,047, while the pound fell to its weakest level in nearly two years at $1,242.

Meanwhile, the recent devaluation of China’s currency as the country grapples with the resurgence of the Covid virus has clouded the outlook for global growth, further boosting the dollar, which tends to benefit when investors avoid risky assets.

“We’ve had two decades of low-inflation benefits, but now central banks are trying to restore their anti-inflation credibility,” said Jordan Rochester, a foreign exchange strategist at Nomura. “But the European Central Bank is facing stagflation and will struggle to keep up with the Fed, the Bank of Japan is not even coming to the party. With lower exposure to China, lower exposure to Ukraine, the US is emerging as a resilient.”

Markets are pricing rate increases by half a percentage point from the Federal Reserve at each of its next three meetings, as the central bank tries to curb the highest rate of inflation in decades – despite data showing the US economy contracted unexpectedly in the first quarter.

Investors also expect the European Central Bank to start raising interest rates later this year. But currency traders may begin to question this forecast the longer the conflict in Ukraine drags on, which could cause the euro to fall even more, according to Rochester.

“Parity with the dollar is now a conversation that investors want to have,” he said.

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