Dollar aided by hawkish Fed; sterling eyes big BoE rate hike

Dollar aided by hawkish Fed; sterling eyes big BoE rate hike

US one dollar and British five pound are seen in this illustration taken May 7, 2021. — Reuters pic

Thursday, 04 Aug 2022 4:29 PM MYT

LONDON, Aug 4 — The dollar held onto recent gains against other major currencies today, as more Federal Reserve officials reinforced the central bank’s determination to slay the highest inflation in decades with aggressive interest rate hikes.

The Bank of England meanwhile was widely expected to raise interest rates by the most since 1995, with sterling edging up ahead of the rate decision at 1100 GMT.

Fed officials continued to push back against the perception that US interest rates were close to peaking. That supported the dollar.

San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari overnight voiced their determination to rein in high inflation.

Fed officials have uniformly flagged that they remain determined to deliver rate hikes until there is strong evidence that inflation is headed back down to the Fed’s 2 per cent goal.

“We’ve had hawkish comments and we’ve also had comments about the extent to which bond markets are expecting rate cuts next year,” said Jane Foley, head of currency strategy at Rabobank in London.

“This suggests that rates will stay higher for longer. So, this peak hawkishness could be drawn out and that has supported the dollar this week.” The dollar was last up around 0.2 per cent at 134.15 yen and just a tad softer against the euro, which traded at US$1.0176 (RM4.53).

The dollar index, which measures the greenback against six peers, was at 106.34, holding comfortably above a one-month low hit earlier this week. It is up around 0.4 per cent this week, reversing the trend of the previous two weeks.

The dollar’s strength has yet to peak, according to a Reuters poll released on Thursday.

It found that 70 per cent of those polled thought the dollar was yet to peak in this cycle, even after the dollar index hit its highest level in two decades in July.

Money markets price in a 50 bps hike at the Fed’s September meeting, and a roughly 44 per cent chance of another massive 75 bps increase. The Fed hiked rates by 75 bps at its meeting in June and July.

Britain’s pound rose 0.2 per cent to US$1.2172. The BoE was widely expected to raise rates by an aggressive 50 basis points to 1.75 per cent, the highest level since late 2008.

The BoE has never raised the Bank Rate by a half point since it was made independent in 1997.

The Australian dollar was at US$0.6968, up 0.2 per cent after gaining almost 0.5 per cent the day before. It was trying to head back above the symbolic US$0.70 level it fell from earlier in the week after seemingly dovish remarks from the central bank.

Bitcoin was up 0.6 per cent at US$22,975. — Reuters