LONDON, May 4 — The dollar index pulled further away from 20-year highs today, having already priced the US Federal Reserve to raise interest rates by a half-point later in the day and by some 250 basis points by year-end.
Money markets are betting the Fed will raise rates as high as 3.6 per cent by end-2023 to tame inflation at 40-year highs. Having kicked off its hiking cycle in March, the Fed is seen delivering a 50 bps move today, with two more half-point hikes priced for the next two meetings.Those bets lifted the dollar index 5 per cent last month to around 103.93. It has since slipped 0.3 per cent off those levels and by 00830 GMT, was at 103.39, slightly lower on the day.
“We are also in a situation where if you let go of dollar positions, where do you put your money?,” Pesole said, noting the effect of the Russia-Ukraine war on Europe and the economic slowdown in China. “The fundamentals, the interest rate difference, the growth outlook, the risk-off mood, all tend to favour the dollar,” said Gergely Majoros, member of the investment committee at Carmignac.