The dollar’s strength seems endless as the market bets the US Federal Reserve will raise interest rates to combat inflation, which rose 9.1% in June, something not seen for 40 years.
In addition, the global economic turmoil has put a rocket under the safe-haven dollar, pushing the dollar index – which tracks the currency’s performance against six other currencies – to its highest level in 20 years.
So far this year alone, the dollar index is up more than 13%. This Thursday, the indicator stands at 109.29 dollars, a maximum since September 2002. Its strength has weakened other currencies, such as the yen and the euro.
This Thursday, the yen depreciated about 1% to 139 yen per dollar, a level not seen since 1998, as the Japanese central bank maintains a dovish stance that contrasts with the aggressive moves of central banks around the world.
For its part, the euro has had a week to forget, for the first time in 20 years, the single currency is below the dollar. On this day, the euro fell to $0.99520, the lowest level since December 2002.
The European currency has been weighed down by lowered official economic forecasts for the euro zone, concerns about the energy crisis, political conflicts in Italy and the war in Ukraine.
Italian Prime Minister Mario Draghi’s coalition government was at risk of collapsing after the 5 Star Movement, one of its members, failed to support a parliamentary no-confidence motion that included measures to offset the cost-of-living crisis.
The European Commission on Thursday also cut its forecasts for economic growth in the euro zone for this year and next, and revised upwards its inflation estimates, largely due to the impact of the war in Ukraine.
The Commission now forecasts growth of 2.6% this year, slightly lower than the 2.7% it had forecast in May. But next year, in which the impact of the Ukraine war and rising energy prices may be felt even more acutely, the Commission now forecasts growth of 1.4%, instead of the 2.3% previously estimated. .
Bets on faster policy tightening by the Fed have also weighed on currency performance, especially after US inflation data and the aggressive 100 basis point rate hike by the Bank of Canada.
“Right now, the markets show a clear preference for the dollar, given the general context of geopolitical uncertainty, pressures in Europe due to the energy supply situation and expectations of interest rate hikes in the United States,” said Shaun Osborne. , chief currency strategist at Scotiabank.
Traders have raised bets that the US central bank could raise rates by 100 basis points when it meets on July 26-27. An increase of at least 75 basis points is considered almost certain.
With information from Reuters.
