Interest rates

Dollar soars as Fed announces high interest rates

The week began with the surge in the US dollar. The safe haven briefly breached its 20-year highs against several currencies as the Fed signaled high interest rates for a while.

According to Jerome Powell, Chairman of the Federal Reserve, interest rates will help bring inflation down. Even the dollar index, a tool used to measure the dollar’s performance against other currencies, hit its two-decade high at 109.48.

However, the index retreated after the European session continued. It remained firmly at 0.5% against the yen while the yuan broke through 6.9 to the dollar. Several forex trading brokers noted that the pound has also hit a new low against the dollar over the past two and a half years.

On the other hand, the euro gained ground, sustainably up 0.3% to 0.9993 dollars. One of the main reasons behind this was comments from the European Central Bank, raising expectations of a rate hike in September.

Powell spoke about rate hikes at the Wyoming central bank conference. With inflation at 3 times the ideal 2% target, the Fed will hold interest rates for some time.

The financial market has stepped up bets for an aggressive rate hike over the coming month. The odds of a 75-point rise rose to 70% as US Treasury yields jumped. On the other hand, two-year bond yields hit a 15-year high of 3.49% to support the greenback.

Similarly, expectations of a euro rate hike in September have also increased. Isabel Schnabel, a member of the ECB’s executive board, said that central banks’ loss of confidence will lead them to rein in inflation hard, even if it triggers a recession.

While most central banks are showing hawkish tendencies, traders and investors are keeping a close eye on the market to maintain their portfolios.