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Dollar Forms New 2-Year Highs on Fed's View

The dollar rose to a contemporary biennial high on weekday in skinny and stormy mercantilism, in line with higher North American nation Treasury yields, as investors braced for a few a mathematical notation rate hike from the Federal Reserve System.

US interest rate futures markets have priced in a 96% chance of a 50-basis point tightening at the Fed's policy meeting next month, and about 215 basis points in a cumulative rate hike in 2022, providing plenty of support for the dollar.

The greenback also rose to a fresh 20-year peak of 126.98 yen versus the Japanese currency, highlighting the contrast in monetary policy between the hawkish Fed and the ultra-dovish Bank of Japan.

There's a history that when the Fed plans to hike and tighten, money ends up being lost during that cycle, but right now there's a bit of optimism out there that could knock money down, said Juan Perez.

Speculators' net long bets on the US dollar fell for the second week in a row, according to calculations by Reuters and US Commodity Futures Trading Commission data released on Friday. The value of net long dollar positions was $13.22 billion for the week ended April 12.

 

Factors Driving Dollar Rising in the Spot Market

Currency positions lack a clear narrative sense for a reduction in the US dollar's bullish sentiment, while further gains in bearish bets in the Swiss franc and yen reflect the gains in US dollar yields over the two currencies – each central bank remaining far from tightening.

The yen, on the other hand, earlier eased from a 20-year low after Bank of Japan Governor Haruhiko Kuroda and Finance Minister Shunichi Suzuki voiced concerns about the weakening of their currencies.

The rally proved short-lived as the yen hit a new 20-year trough in the New York session and was last up 0.3% at 126.93 yen.

There is growing speculation about FX intervention to save the yen, although that seems unlikely, Marios Hadjikyriacos, senior investment analyst at forex broker XM, wrote in a research note.

Japan had to intervene on its own because America and Europe would not agree to weaken their currencies in this inflationary environment, and Japanese authorities haven't even described the move as 'irregular' to show action.

The dollar rose to two-decade peaks against the yen and continued to approach a two-year high against the euro on Friday, as more hawkish comments from Federal Reserve officials reinforced expectations for faster US policy tightening.

Dollar Movement Against Other Currencies

The greenback was 0.43% higher at 126.40-yen after earlier hitting 126.56 for the first time since May 2002. The euro slipped 0.14% to $1.0812, returning to an overnight low of $1.0785, a level that was not seen since April 2020.

European Central Bank President Christine Lagarde said at about the same time that there was no clear timeframe on when the ECB's interest rates would start rising, adding that it could be weeks or even months after the central bank halted its stimulus scheme in Europe.

Williams spoke openly about the need to raise rates more quickly and above neutral, further supporting the dollar, Tim Riddell, macro strategist at Westpac wrote in a client note.

The dollar index rose 0.08% to 100.48, edging back to a two-year high of 100.78 hit on Thursday. For the week, it has gained 0.64%, while the euro has lost 0.58%. Against the yen, the dollar was up 1.71%, heading for a sixth straight week of wins.

Japan's Finance Minister Shunichi Suzuki warned on Tuesday that the government is watching the yen's movements and their impact on the economy "with a sense of urgency".

Meanwhile, the Australian dollar hovered near a three-week low of $0.7392 hit on Wednesday, the last trading down 0.2% on the day at $0.7404.

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