# U.S. dollar rallies to more than 2-year hike on steep Fed rate hike outlook
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-04-22
Category: TRADING
Category URL: https://financedigest.com/category/trading
Meta Title: Dollar Surges to Two-Year High on Fed Rate Hike Expectations
Meta Description: Get the latest on the dollar's surge to its highest level in over two years, supported by Fed Chair Powell's hints at interest rate hikes. Includes
URL: https://financedigest.com/u-s-dollar-rallies-to-more-than-2-year-hike-on-steep-fed-rate-hike-outlookhtml

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(Adds bank affiliation BNP Paribas in analyst quote in 5th paragraph)

By Gertrude Chavez-Dreyfuss and Stefano Rebaudo

NEW YORK (Reuters) – The dollar surged to a more than two-year high on Friday, continuing to draw support from Federal Reserve Chair Jerome Powell’s comments on Thursday that more or less backed a half a percentage point tightening at next month’s policy meeting, including consecutive rate increases this year.

The dollar index, a gauge of the greenback’s value against six [major currencies](https://www.financedigest.com/u-s-dollar-advances-vs-major-currencies-as-risk-appetite-fades.html "U.S. dollar advances vs major currencies as risk appetite fades"), hit 101.6, the highest since March 2020, It was last up 0.4% at 100.99. So far this year, the [dollar has gained](https://www.financedigest.com/dollar-trims-gains-vs-euro-after-u-s-inflation-data.html "Dollar trims gains vs euro after U.S. inflation data") 5.7%.

[Powell said a half-point interest rate](https://www.financedigest.com/dollar-jumps-as-powell-flags-higher-terminal-rate.html "Dollar jumps as Powell flags higher terminal rate") increase “will be on the table” when U.S. [central bank](https://www.financedigest.com/central-banks-hike-rates-again-but-a-pause-is-coming.html "Central banks hike rates again, but a pause is coming") meets on May 3-4.

[Fed funds futures have started to price in a third 50 basis-point hike](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike") in July, after the same increase in May and June, AND nearly 248 basis points of cumulative increases in 2022.

Even if the [Fed does back-to-back-to-back 50 basis-point hikes](https://www.financedigest.com/dollar-falls-after-fed-raises-rates-forecasts-future-hike.html "Dollar falls after Fed raises rates, forecasts future hike"), that’s still at a rate that is at the bottom end or below neutral,” said Calvin Tse, head of Americas Developed Markets Strategy (FX, Rates, Equities), at BNP Paribas in New York.

“Even if the Fed is doing that, they likely don’t feel that it’s excessive tightening because even after these hikes are put in place, policy will still be loose, still accommodative,” he added.

Across the Atlantic, the euro fell 0.4% to $1.0793, after [European Central Bank officials sent mixed policy signals](https://www.financedigest.com/european-shares-rise-as-us-inflation-data-signals-end-of-rate-hike-cycle.html "European shares rise as US inflation data signals end of rate-hike cycle").

ECB President Christine Lagarde struck a dovish tone on Thursday by saying the central bank might need to cut its growth outlook a day after ECB dove Luis de Guindos joined some policymakers in calling for an early end of the bank’s asset [buying scheme coupled with a rate](https://www.financedigest.com/beat-the-exchange-rate-and-buy-that-dream-holiday-home-by-paying-in-pounds.html "Beat the exchange rate and buy that dream holiday home – by paying in pounds! ") rise in July.

Matthew Ryan, senior market analyst at Ebury said “several ECB members were open to a [rate hike](https://www.financedigest.com/wall-street-slips-dollar-gains-as-fed-seen-hiking-rates-in-may.html "Wall Street slips, dollar gains as Fed seen hiking rates in May") in July, but Lagarde’s comments continued to be non-committal.

Frankly, we think the [ECB risks falling](https://www.financedigest.com/big-fall-in-euro-zone-inflation-offers-little-help-for-ecb.html "Big fall in euro zone inflation offers little help for ECB") quite significantly behind the curve,” he added.

Investors are also waiting for Sunday’s run-off of French presidential elections between incumbent Emmanuel Macron and far-right challenger Marine Le Pen, with the latest [polls showing Macron](https://www.financedigest.com/frances-macron-consolidates-poll-lead-after-tv-clash.html "France’s Macron consolidates poll lead after TV clash") winning with 55% of the votes.

Le Pen’s [win could provoke tensions with European allies and weigh on the euro](https://www.financedigest.com/rheinmetall-wins-quarter-billion-euro-order-for-e-vehicle-parts.html "Rheinmetall wins quarter-billion euro order for e-vehicle parts"), analysts said.

Sterling fell against the [dollar to its lowest since November 2020 after sales data and recent Bank of England comments signalled a possible slowdown in the expected](https://www.financedigest.com/dollar-drops-as-inflation-cools-more-than-expected.html "Dollar drops as inflation cools more than expected") monetary policy tightening path.

The [pound fell 1.4% against the dollar](https://www.financedigest.com/pound-hits-10-month-peak-euro-up-as-dollar-under-pressure.html "Pound hits 10-month peak, euro up as dollar under pressure") to $1.2844a, after hitting $1.2839, the lowest since October 2020.

The Japanese yen was flat against the [dollar](https://www.financedigest.com/yen-sinks-as-rates-outlook-diverges-nz-dollar-tumbles.html "Yen sinks as rates outlook diverges; NZ dollar tumbles") at 129.37 but still within striking distance of its weakest level since April 2002 at 129.43 yen per dollar hit on Wednesday.

Since the beginning of the year, the [yen has lost more than 10% of its value against a resurgent dollar](https://www.financedigest.com/aussie-dollar-firm-as-bonds-tumble-yen-looks-past-boj.html "Aussie dollar firm as bonds tumble, yen looks past BOJ"). A weak yen has raised the cost of import prices such as commodities, which are still priced in dollars.

Traders remained wary of intervention from [Japanese monetary officials to strengthen the yen](https://www.financedigest.com/japanese-yen-gains-as-ueda-set-to-be-named-next-boj-governor.html "Japanese yen gains as Ueda set to be named next BOJ governor").

Japanese television broadcaster TBS [reported on Friday that Japan and the United States likely discussed the idea of coordinated currency intervention](https://www.financedigest.com/cma-report-looks-to-interventions-to-help-overdraft-users.html "CMA REPORT LOOKS TO INTERVENTIONS TO HELP OVERDRAFT USERS") to stem further yen falls during a bilateral finance leaders’ meeting.

Japanese [Finance Minister Shunichi Suzuki described recent yen falls as “sharp” and said he agreed](https://www.financedigest.com/g7-finance-chiefs-agree-on-russian-oil-price-cap-but-level-not-yet-set.html "G7 finance chiefs agree on Russian oil price cap but level not yet set") with U.S. Treasury Secretary Janet Yellen to communicate closely on currency moves.

The Chinese offshore yuan fell 0.9% to a fresh 12-month low of 6.548 yuan per [dollar in London trade and looked set for its worst week](https://www.financedigest.com/dollar-dips-ahead-of-inflation-data-later-this-week.html "Dollar dips ahead of inflation data later this week") in more than 2-1/2 years. Market participants wondered if this week’s [fall was a policy response to counter the economic slowdown](https://www.financedigest.com/logitech-quarterly-sales-fall-22-as-slowdown-fears-bite.html "Logitech quarterly sales fall 22% as slowdown fears bite").

(The story refiles to add bank affiliation [BNP Paribas](https://www.financedigest.com/bnp-paribas-first-quarter-revenue-beats-as-trading-outperforms.html "BNP Paribas first-quarter revenue beats as trading outperforms") in analyst quote in 5th paragraph.)

(Reporting by Gertrude Chavez-Dreyfuss in New York and Stefano Rebaudo; Editing by Tomasz Janowski)


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