U.S. Dollar Climbs From One-week Low As Fed's Powell Backs Hefty Rate Hike

U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. Reuters / DADO RUVIC

The U.S. dollar rose from a one-week low on Thursday after Federal Reserve Chair Jerome Powell all but confirmed a half a percentage-point tightening at the policy meeting next month, including consecutive rate increases this year.

The dollar index, which gauges the strength of the currency versus a basket of rivals, gained 0.2% to 100.53, after trading lower for most of the session. The index has advanced 2.3% so far this month, on pace for its best monthly gain since June 2021.

Powell said a half-point interest rate increase will be "on the table" when the Fed meets on May 3-4 to approve the next in what is expected to be a series of rate increases this year.

Fed funds futures have started to price in bets of three straight 50 basis-point hikes starting with next month's policy meeting, with an implied rate of about 2.71% in December.

"Rising fears over an increasingly aggressive Fed policy posture weighed heavily on Treasuries, especially at the short end, and the pop in rates knocked Wall Street lower," Action Economics said in its blog after Powell's comments. "However, the dollar was the beneficiary."

The euro slid from a more than one-week high after European Central Bank President Christine Lagarde said the ECB may need to cut its growth outlook further as the fallout from Russia's invasion of Ukraine weighs on households and businesses.

Lagarde's comments were in contrast to hawkish comments from ECB officials who seemed to suggest European Central Bank officials raised bets that euro zone interest rates will rise soon.

Joachim Nagel, president of Germany's Bundesbank, joined a chorus of policymakers in saying the ECB could raise interest rates at the start of the third quarter..

Money markets, which had eased rate hike bets following last Thursday's ECB meeting, were now pricing in a more than 20 basis-point (bps) rise by July and over nearly 80 bps of tightening by year-end.

That would take benchmark interest rates above zero for the first time since 2013.

European political news was also supportive, with French President Emmanuel Macron clearing a major hurdle ahead of Sunday's runoff election with a combative performance in a TV debate against far-right candidate Marine Le Pen.

With the deciding vote just four days away, some 59% of viewers found Macron to have been the most convincing in the debate, according to a snap poll for BFM TV, suggesting Macron's 10 percentage point lead in the polls was not under threat.

In late trading, the euro fell 0.2% to $1.0832, after hitting $1.0936, its highest level since April 11.

The dollar rose 0.3% against the yen to 128.30.

Against the Swiss franc, the dollar rose 0.5% to 0.9532 francs.

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Currency bid prices at 4:07PM (2007 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 100.5700 100.3400 +0.24% 5.129% +100.6300 +99.8160

Euro/Dollar $1.0837 $1.0855 -0.15% -4.67% +$1.0936 +$1.0824

Dollar/Yen 128.2600 127.8850 +0.30% +11.42% +128.7000 +127.8200

Euro/Yen 139.00 138.81 +0.14% +6.66% +140.0000 +138.7400