Dollar rises, easing concerns about rate hikes
Written by Peter Norse
Investing.com – The dollar rose on Wednesday, buoyed by talk of rising US interest rates as a sell-off in tech stocks added to its safe-haven appeal.
At 2:55 AM ET (07:55 GMT), the dollar index, which measures the greenback against a basket of six other currencies, was up 0.4% at 91.308, pulling away from its two-month low of 90.422.
While the US currency pair is down 0.1% at 1.2007, heading back to the major 1.20 pivot, the US currency pair is up 0.1% at 1.3893, as investors await the Bank of England policy decision on Thursday. The currency pair against the US dollar also rose 0.1% to 109.46, while the risk-sensitive currency pair against the US dollar rose 0.1% to 0.7715.
This rebound in the dollar came on the heels of US Treasury Secretary Janet Yellen’s comments indicating that a rate hike might be needed in the near future.
“Maybe interest rates should rise somewhat to make sure our economy does not overheat,” Yellen said at a hypothetical meeting on Tuesday. “Although the additional spending is relatively small in relation to the size of the economy, it could cause some very modest increases in interest rates.”
Yellen also later tried to reverse the significance of these comments, but the mere mention of the US tightening spooked the market, which had become too affected by monetary stimulus from the Fed.
The tech heavyweights fell on Wall Street as investors dumped tech giants over concerns that their valuations would be affected in the rising interest rate environment.
Investors are now looking forward to the national employment report from ADB, due for release later in the day, and the April employment report, including non-farm payrolls, scheduled for Friday. In addition, the Institute for Supply Management’s Index of Non-Manufacturing Purchasing Managers is due to be released later on Wednesday.
“The United States is now on the verge of reaping the benefits of growth from the experimental policy mix of mass printing and large-scale fiscal stimulus,” said analysts at Nordia Corporation in a note. “The US is likely to outperform all of its peers in terms of growth this year, which over time usually leads to the strengthening of the US dollar against other currencies as a result of the side effects of a stronger growth pace.”
The bank is targeting 1.15-1.16 euros per US dollar in the second half of the year.
On the other hand, the Indian rupee currency pair rose against the US dollar by 0.3% to 73.95 after India’s central bank announced easing loan payments as well as steps to boost credit for key sectors as the country grapples with the worst spread of the Covid-19 virus in the world. .
The euro currency pair also traded against the Norwegian krone, down 0.1% at 10.0026, and the US dollar pair settled against the Norwegian krone at 8.3345 ahead of the latest policy setting meeting by the Norwegian Central Bank.
It is widely expected that the Bank of Norway will keep the key interest rate at zero, as analysts at Nordia said, “We are very interested in how they evaluate the latest vaccine news and the prospects for reopening the Norwegian economy. This is also clearly the most important factor for when it will happen. The first rate hike, ”he said.
The Polish central bank is also set to meet at a later date, amid speculation that it will change its direction to reflect an early tightening of monetary policy more than previously expected.
Trading specialists at Windsor Brokers say that the Turkish lira is about to test new low price levels due to increased inflation, negative technicalities, and the central bank’s loss of independence.
The Turkish Central Bank issues its interest rate decision tomorrow, Thursday, May 6. During the last meeting, the Central Bank kept the interest rate stable at 19%.
While the Turkish lira went through a crisis during the month of March after the dismissal of Turkish President Recep Tayyip Erdogan, the former central bank governor, Naji Iqbal, for not complying with the demands to stop raising interest rates and monetary tightening, Iqbal believed that this is the only way to save the economy from high inflation rates.
The isolation threatened the independence of the central bank’s decision, prompting major banking and investment institutions to exit Turkish assets, causing a strong drop of 12% to the exchange rate.
The current central bank governor, Shihab Kafcioglu, has pledged to keep the interest rate stable.
Today, the Turkish lira exchange rate is recorded at 8.35 Turkish lira per dollar. The lira was suffering against the dollar after the political tension between Turkey and the United States, as the latter recognized a genocide committed by the Ottoman Empire for Armenian citizens during the past century, and this is what Turkey categorically refuses to acknowledge.