US Dollar Stays Strong as Investors Bet For a Fed Rate Hike by March
Early on Thursday, the US dollar is trading close to the highest levels seen in five years against popular safe haven currency Japanese yen amid rising bets for the Fed to hike interest rates by as soon as March. At the time of writing, the US dollar index DXY is trading at around 96.28.
The greenback’s bullish moves were triggered during the previous session after Fed officials expressed interest in hiking rates soon on account of the tightening in the US labor market. There was also interest among central bank officials to embark on quantitative tightening (QT) to combat the soaring inflation that could hurt economic recovery in the US.
Futures on the federal funds rate have assigned an 80% likelihood of the Fed announcing a 0.25% rate hike in its policy review meeting in March. This sentiment has sent investors back towards the US dollar, causing a decline in other instruments, especially the JPY, GBP and even cryptocurrencies.
The reserve currency received additional support from the release of the ADP private employment report on Wednesday, which revealed a stronger than expected increase in private payrolls across the US during December. According to the ADP, private payrolls surged by 807k in December against economists’ expectations for a rise by 400k and November’s increase by 505k instead.
The US dollar’s uptrend received more support from a rise in five year US Treasury yields, which have risen close to the highest levels seen in two yars. Rising bond yields signify an increase in investor confidence in the economy and keep its currency stronger, helping the dollar regain some strength against its key rivals.
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