The dollar strengthened for the third week in a row

24.04.2022. / 16:00

ZAGREB, In world markets, the value of the dollar against the six most important world currencies rose last week, for the third time in a row, because it is increasingly clear that the US Federal Reserve will aggressively tighten monetary policy to curb high inflation.

Foto: Tanjug/shutterstock.com

The dollar index, which shows the movement of the value of the US against the other six most important world currencies, strengthened last week by 0.65 percent, to 101.16 points, the new highest level in more than two years.
At the same time, the dollar exchange rate against the yen jumped 1.6 percent to 128.50 yen, and at one point reached 129.43 yen, the highest level in 20 years.

The US currency also strengthened against the euro, with the euro falling 0.2 percent to $ 1.0790, close to a two-year low.

After two weeks of growth, an additional boost to the dollar was provided last week by US Federal Reserve Chairman Jerome Powell, who said a Fed meeting in early May would consider raising key interest rates by 0.50 percentage points.

As inflation in the U.S. is at its highest level in more than 40 years, it is appropriate to get things moving a little faster, Powell said in a discussion on the global economy at an International Monetary Fund (IMF) meeting.

At its March session, the Fed raised interest rates for the first time since 2018, by 0.25 percentage points, and is likely to raise them by a further 0.50 percentage points as early as May.
After recent comments from Powell and other Fed leaders, it is becoming increasingly clear that monetary policy will tighten aggressively later.

Some analysts expect the Fed to raise interest rates by 0.50 percentage points at both June and July sessions.

“Even if the Fed increased interest rates by 0.50 percentage points for three months in a row, interest rates would still be at the lower limit or below neutral levels. The leaders of the Fed would probably not consider this an excessive tightening, because even if interest rates increase by that much, monetary policy would still be lenient. “ says Calvin Tse, director of strategic department at BNP Paribas Bank.

On the other hand, Japan’s central bank will pursue a lenient monetary policy for some time to support economic recovery despite growing inflationary pressures.

As a result, the yen’s exchange rate against the dollar plunged to its lowest level in 20 years.

The American currency is also strengthening against the European currency, but not as fast as against the yen.

The euro is supported by increasingly realistic expectations that the European Central Bank (ECB) will have to tighten monetary policy earlier than expected, given that inflationary pressures in the eurozone are constantly growing.

It was recently announced at the ECB session that the incentive programs will be canceled in the third quarter, and that only then will the interest rates increase.

There are more and more ECB leaders who think this should be done sooner. ECB Vice President Luis de Guindos said last week that the government bond buyout program could end in July.
Therefore, it is now estimated in the money markets that the ECB could increase interest rates by 0.80 percentage points by the end of the year.

Thus, the value of the dollar continued to grow last week, which has strengthened by 5.7 percent since the beginning of the year, compared to the other six important world currencies. Hina


Source: Capital.ba – Informacija je capital by www.capital.ba.

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