The Impact of Fed Policy on the Dollar and Other Currencies
Impact of Fed Policy on Dollar and Other Currencies
The dollar dipped against the euro on Friday but gained against the yen as investors evaluated comments by Federal Reserve Chair Jerome Powell that the central bank could hike rates again if inflation remains above its target.
Japanese Yen Remains on Watch
The Japanese currency also remained on watch for possible intervention as it holds near a one-year low against the greenback.
Powell and Fed Officials’ Comments
Powell and other Fed officials said on Thursday that they are still not sure that interest rates are high enough to finish the battle with inflation, with Powell saying that the Fed may get further help in taming price increases from improvements in the supply of goods, services and labor.
Market Expectations
Markets are looking for “the ray of sunshine” that the Fed is done hiking rates, even though Powell since Jackson Hole has been clear that it will depend on data as it comes in, said Lou Brien, market strategist at DRW Trading in Chicago.
Upcoming Economic Data
Consumer price inflation and retail sales data due next week are expected to offer the next clues on whether further rate increases are likely.
Fed Funds Futures Traders’ Sentiment
Fed funds futures traders are pricing in a 22% chance of an additional hike by January, according to the CME Group’s FedWatch Tool.
Fed Bank of San Francisco President’s View
Fed Bank of San Francisco President Mary Daly said on Friday she is not ready to say yet whether the central bank is done raising its interest rate target to get inflation back to 2%.
Market Impact of Treasury Yields
The dollar also spiked on Thursday in line with Treasury yields after the U.S. Treasury Department saw weak demand for a $24 billion 30-year bond auction.
Performance of Other Currencies
The euro gained 0.10% to $1.0679. Against the Japanese yen, the dollar gained 0.16% to 151.59 yen, the highest since Nov. 1. The Norwegian crown jumped after data showed Norway’s inflation was stronger than expected in October, boosting market rate hike expectations. The dollar was last down 0.94% at 11.13 crowns to the dollar.
Performance of Australian Dollar and Cryptocurrency
The Australian dollar fell to $0.63395, the lowest since Nov. 1. Bitcoin, the world’s largest cryptocurrency, was at $37,167, having peaked at $37,978 in the previous session, its highest level since May 2022.
Impact of Spot Crypto ETF Approval
Prices of the digital assets have surged after speculation of an imminent approval of BlackRock’s spot bitcoin ETF. A spot crypto ETF would make the sector “more accessible for institutional investors to enter the crypto space, likely boosting demand and subsequently prices,” said Carl Szantyr, managing partner of digital asset hedge fund Blockstone Capital.
Currency Bid Prices at 3:01PM (2001 GMT)
Dollar index 105.8500 105.9200 -0.06% 2.280% +106.0100 +105.7400, Euro/Dollar $1.0679 $1.0668 +0.10% -0.34% +$1.0693 +$1.0657, Dollar/Yen 151.5900 151.3500 +0.16% +15.62% +151.5950 +151.2300, Euro/Yen 161.88 161.44 +0.27% +15.38% +161.9400 +161.3600, Dollar/Swiss 0.9027 0.9031 -0.04% -2.38% +0.9046 +0.9003, Sterling/Dollar $1.2216 $1.2221 -0.03% +1.02% +$1.2237 +$1.2187, Dollar/Canadian 1.3810 1.3806 +0.03% +1.93% +1.3855 +1.3792, Aussie/Dollar $0.6356 $0.6366 -0.16% -6.76% +$0.6369 +$0.6340, Euro/Swiss 0.9637 0.9632 +0.05% -2.61% +0.9643 +0.9620, Euro/Sterling 0.8739 0.8725 +0.16% -1.19% +0.8755 +0.8718, NZ $0.5888 $0.5894 -0.10% -7.27% +$0.5904 +$0.5879, Dollar/Norway 11.1270 11.2310 -0.94% +13.36% +11.2190 +11.1150, Euro/Norway 11.8845 11.9629 -0.66% +13.25% +11.9774 +11.8629, Dollar/Sweden 10.9150 10.9234 +0.04% +4.87% +10.9439 +10.8795, Euro/Sweden 11.6557 11.6506 +0.04% +4.54% +11.6675 +11.6256