U.S. dollar declined against Japanese Yen and Sterling
The greenback remained steady on Friday after rallying in the previous session. Investors digested a raft of U.S. Federal Reserve’s rate increases. They also contemplated the possibility that borrowing costs might still rise.
On Thursday, Federal Reserve Chair Jerome Powell announced that the agency expected U.S. rates to increase further and stay higher for longer. However, such a policy might push the American economy into reversal. Traders fear that the central banks’ hawkish rhetoric will damage global growth.
Such concerns have triggered a sell-off in stocks and European bonds today, as well as in the previous session. But at the same time, the fearful sentiment supported the safe-haven dollar. Riskier currencies ended in the red, though.
Alvin Tan, the head of Asia FX strategy at RBC Capital Markets, noted that Thursday’s session was a big risk-off. Consequently, the greenback will benefit as a safe-haven asset. In the short term, the Forex market wants to sell USDs, notwithstanding Thursday’s price action. However, as the new year approaches, Tan thinks the sell-off could reverse on account of the slowdown in global economic growth.
The dollar index traded mostly flat at 104.48 against the basket of six major peers on Friday after jumping by more than 0.9% yesterday. Initially, the index gained approximately 9% in 2022, thanks to the Fed’s rate hikes. But it has shaved off almost 8% since skyrocketing to a 20-year high in September. U.S. inflation declined, raising hopes the central bank’s rate-hiking cycle might soon end.
Dominic Bunning, the head of European FX research at HSBC, thinks that the greenback might decrease significantly in the next six to twelve months. But there still might be room for the choppiness as it’s an uneasy bullishness around risk appetite and risk currencies.
How are the Euro and Sterling faring?
The euro exchanged hands flat versus the dollar at $1.063 on Friday. The currency had dropped by 0.5% in the previous session after the European Central Bank hiked interest rates. The bank also stated that it planned to continue its hawkish policy.
