The greenback’s gains this year have been fueled by a combination of higher central bank interest rates, haven buying, and recession concerns. Thursday’s climb was driven primarily by rising short-term yields following higher-than-expected inflation data, as investors boost bets on an aggressive rate hike by the Federal Reserve later this month.
“Post-CPI we’re seeing the broadening and increased persistence in US inflation, resulting in markets upping the ante with regards to the implied path of US interest rates,” said Simon Harvey, head of FX analysis at Monex Europe.
“That’s adding a lot of pressure on global risk across currencies, equities, rates, you name it. Everything is under pressure at the moment, and in this environment it’s very difficult for FX markets to look outside the dollar.”
The ICE US Dollar Index, a separate gauge that compares the greenback to developed currencies only and has a greater weighting for the euro, exceeded its pandemic peak earlier this year and is currently near its strongest level in two decades.
How much confidence is there in the European Central Bank and the euro-zone project? If you want to share your views, please participate in the MLIV Pulse survey. Click here to get involved.