The dollar held close to a two-decade high on Wednesday as investors waited for fresh U.S. inflation data to anticipate how aggressively the Federal Reserve will have to tighten monetary policy to keep rising prices in check. The dollar index, which measures the greenback’s strength against a basket of six currencies, was on the back foot in early European trading, slipping 0.28% to 103.65. But while expectations are for U.S. inflation to have softened to 8.1% annually in April against 8.5% in March, the dollar was still within reach of ...

China’s one-year dollar/yuan swaps CNY1Y=CFXS fell into negative territory for the first time in more than three years on Tuesday, pressured by the vanishing yield gap between the world’s two largest economies. The one-year swap points touched a low of -40 points, the lowest level since March 2019. Source: Reuters (Reporting by Winni Zhou and Andrew Galbraith; Editing by Andrew Heavens)

Hedge funds went on their heaviest dollar-buying binge this year ahead of the Federal Reserve’s May 4 interest rate hike, helping to propel the greenback to a fresh 20-year peak. U.S. futures market data show that the $6.5 billion jump in the value of funds’ net long dollar position against a range of currencies in the week to May 3 was the biggest increase since November, and was led by buying against the euro and sterling. Commodity Futures Trading Commission speculators flipped to a net short euro position for the ...

USD: Any weakness looks unlikely to last Global equity futures are pointing to a tentative rebound in global risk assets today after a major sell-off yesterday triggered by fears of an economic slowdown at a time when central banks are tightening policy. It is not surprising to see the dollar remain strong in such an environment, retaining its safe-haven attractiveness whilst still benefiting to a certain degree from the Fed’s front-loaded tightening story. It is also quite predictable to see high-beta currencies bear most of the brunt in the current ...

USD: Dollar may receive most support from external events this week We can probably all agree that there are three key themes driving the dollar at the moment. The first is the Fed’s aggressive tightening prospects as it responds to core inflation above 6%. Importantly, expectations of the Fed cycle remain resolute, with a terminal rate priced near 3.25% next year. The second is the tragedy of the war in Ukraine, which has delivered a stagflationary shock most keenly felt in Europe. And the third is China’s keen pursuit of ...

“Our currency, your problem,” were the words of a former U.S. Treasury secretary in 1971 to other finance ministers aghast at the dollar’s surge. More than 50 years on, relentless dollar strength is again leaving a trail of destruction in its wake. The U.S. currency vaulted to two-decade highs this week, and its strength is tightening financial conditions just as the world economy confronts the prospect of a slowdown. The surge threatens “to damage the broader market environment and expose the economic and financial cracks in the system,” said Samy ...

The dollar climbed to its highest levels in two decades on Monday as a combination of rising U.S. Treasury yields and a tightening lockdown in China boosted the safe haven appeal of the greenback. Against a basket of major currencies, the dollar topped 104.19 for the first time since July 2002, extending its almost 9% rise this year. The dollar’s rise has been aided by a relentless march higher in U.S. Treasury yields. On Monday, yields on ten-year benchmark debt hit 3.18% for the first time since Nov 2018. They ...

The dollar will retain most of its recent gains for at least another six months, according to a Reuters poll of FX strategists who for years mostly held the view the greenback would weaken. Last trading just below a 20-year high it hit last week, the dollar index is up over 14.0% since the start of last year, with about half of those struck this year alone. That rally shows few signs of abating as the Federal Reserve just delivered a much-anticipated 50 basis point rate hike and left the ...

Short positions on the Chinese yuan touched their highest on record and bearish bets on other Asian currencies surged on worries over an economic slowdown in China and aggressive policy tightening in the United States, a Reuters poll found. The yuan has tumbled in recent weeks on fears over the economic fallout of strict COVID-19 lockdowns in the country. Many global investment houses have also downgraded their yuan forecasts in the recent weeks. This poll, which surveyed 11 economists, was concluded before the U.S. Federal Reserve’s decision to raise interest ...

USD: Price pressures in focus in the NFP report The dollar remains very much in demand around the world as price pressures increase, but growth prospects are revised lower. Nowhere was that clearer than in the UK yesterday, where the Bank of England (BoE) forecast a UK contraction in 2023 and revised the 2022 peak in inflation. The BoE update also included an implicit ‘rate protest’ against market pricing of tightening prospects – a measure that hit the pound. This late-cycle, stagflationary environment is a negative one for risk assets, ...

The dollar was headed for a fifth winning week against major peers on Friday, ahead of a closely watched U.S. jobs report that is likely to back the case for aggressive monetary policy tightening. The U.S. currency was up for a ninth week against the yen, as benchmark U.S. Treasury yields US10YT=RR resumed their climb – topping 3.1% overnight – following a blip lower immediately after the Federal Reserve raised interest rates by half a percentage point mid-week, placing the U.S. monetary authority at the vanguard of hawkish global central ...

USD: Sizing the dollar correction The dollar is weaker across the board after last night’s FOMC meeting. One could be forgiven for thinking this was a dovish hike given the market reaction. The catalyst for the move seems to be Powell’s remarks in his press conference that 75bp increment adjustments were not on the table. Despite the 1% correction in the dollar, US interest rate markets have not really moved that much. Pricing of the Fed terminal rate in 2023 has perhaps come 10-15bp off its highs, but at 3.20% ...

The highest inflation in decades is unraveling whatever policy consensus there was between the world’s major central banks since the Great Financial Crisis and global markets could buckle under resulting waves of stress and volatility. A turbo-charged dollar, which often both reflects and fuels financial market stress, risks a vicious cycle as a scramble for dollars intensifies, tightens global financial conditions and increases volatility. The dollar’s surge to its strongest level in 20 years not only reflects how aggressive investors expect the Federal Reserve to be in raising interest rates, ...

The U.S. dollar was nursing its losses at a one-week low on Thursday after the U.S. Federal Reserve raised interest rates as widely expected but poured cold water on the idea that even larger hikes could lie ahead. Expectations of a hawkish Fed have weighed heavily on markets this year and powered the dollar higher – versus a basket of its rivals, it is up more than 7% so far this year, on track for its biggest annual gains since 2015. But the dollar weakened after the Fed announced its ...

USD: Limited downside risks as the Fed prepares to hike With the exception of a modest recovery in some high-beta currencies at the start of this week (AUD is a stand-out after the Reserve Bank of Australia hike), dollar crosses have traded in some rather tight ranges in the run up to today’s FOMC policy decision. We discuss our base case ahead of the Fed meeting in this article. In short, we think the FOMC will deliver a well-telegraphed 50bp rate hike, with a 75bp move (championed by arch-hawk James ...