The Dollar Rises as Fed Cut Bets Unwind
The Euro Hits a Seven-Week Low
The euro reached a seven-week low on Thursday as the dollar surged following Federal Reserve Chair Jerome Powell’s resistance to rate cut expectations in March. Traders also grappled with concerns about U.S. regional banks.
Dollar Strength and Euro Decline
The euro dropped to $1.0780, its lowest level since December 13, and was last down 0.2% at $1.07975. Simultaneously, the pound decreased by 0.3% to $1.2649 before the Bank of England’s policy decision later in the day.
Impact on the Dollar Index
The dollar index, which measures the currency against a basket of six major peers, including the euro, yen, and British pound, rose 0.06% to 103.68. It remained near the recent high of 103.82, last seen in December.
Factors Driving the Dollar
The dollar’s strength was driven by U.S. economic data indicating that the Fed can delay interest rate cuts. Powell’s statement that a cut in March is not the base case further boosted the dollar.
Market Response and Fed’s Strategy
The Fed’s decision led to lower U.S. Treasury yields, fueling concerns about regional U.S. banks after New York Community Bancorp plummeted by 37%. This reinforced a rush to bonds.
Impact on Currency Markets
In currency markets, the rate-sensitive Japanese yen was affected, with the dollar declining to 146.7 yen after touching a two-week intraday low.
Bank of England’s Decision
The Bank of England announced its rate decision, with no expected changes. The focus was on policymakers’ acknowledgment of slowing inflation and their caution about hinting at imminent rate cuts.
Riksbank’s Interest Rate Decision
Sweden’s Riksbank kept its key interest rate unchanged at 4.00% as expected. However, it mentioned the possibility of bringing forward the timing of a first rate cut if inflation continues to slow.
If the Fed is pushing back on March, the ECB pushing back April, it is reasonable that the BoE pushes back on May,” said Derek Halpenny.
