A slight decline in the dollar was reported, but it was headed toward its best week in seven months. Investors increased their bets on multiple U.S. interest rate hikes in 2022, which pushed the U.S. currency against the euro past key levels.
In early trading on Friday, the U.S. Dollar Index, which measures the greenback against a basket of other currencies, fell 0.12% to 97.127. For the first time since July 2020, the index surpassed the 97-mark.
As the U.S Federal Reserve handed down its policy decision on Wednesday, displaying a hawkish attitude, driving bets that five interest rate hikes will be delivered by 2022. Some analysts predict up to six rate hikes.
In the fourth quarter of 2021, U.S. GDP grew 6.9% quarter-on-quarter, which exceeded expectations.
After the early-year divergence between rising US interest rates and the falling dollar, all those analysts rushed to conclude that the dollar rally was over.
Meanwhile, the prospect of the People’s Bank of China taking the opposite course from the Fed, helped by the soft data on industrial profits earlier in the week, led the dollar to its best session against the yuan in seven months.
In the following week, the Bank of England announced its policy decision and the pound fell to a one-month low.
Furthermore, the Reserve Bank of Australia and the European Central Bank will manage their policies.
Nevertheless, according to some investors, the dollar’s rally is losing steam as central banks and economies around the world slowly emerge from COVID-19.
Rate differentials and higher levels of market volatility are supporting the dollar as it is on a cycle high.
The market will focus on monetary policy normalization and growth outside the U.S. in the second half of 2022, as the global economy emerges from the worst of COVID-19.