Dollar remains firm near 2-year high after comments from Fed policymaker

Close up of US dollar banknotes

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The dollar hit its highest level in nearly two years on Wednesday after jumping overnight on more hawkish comments from a Federal Reserve official, while the euro was hurt by the prospect of further Western sanctions against Russia.

The dollar index, which measures the greenback against six peers, hit 99.640 in early trading, its highest since May 2020, before stabilizing slightly lower.

The index gained 0.5% on Tuesday after Fed Governor Lael Brainard said she expects a combination of interest rate hikes and rapid balance sheet runoff. moves US monetary policy to a “more neutral stance” later this year, with further tightening to follow as needed. .

Brainard is normally seen as a more dovish policy maker.

“Brainard’s comments are the proximate cause of the rally in yields and the stronger dollar we have,” said Ray Attrill, global head of FX strategy at National Bank of Australia.

The US 2-year yield is at its highest level since January 2019, the 5-year yield its highest since December 2018 and the benchmark 10-year yield hit 2.6144%, its highest since March 2019.

“But when you’re talking about the dollar, it’s hard to dissociate it from the euro-dollar exchange rate, given its weight in the index, and the euro hasn’t been favored by the latest enlargement talks. sanctions, which open bad news for the eurozone economy,” Attrill added.

The euro was at $1.0894, its lowest in almost a month.

The sanctions proposed by the European Union would ban the purchase of Russian coal and prevent Russian ships from entering EU ports, part of a rise in Western sanctions against Russia during its invasion of Ukraine which lasted almost six weeks.

Dollar gains were broad based. It was up 0.17% against the Japanese yen last at 123.84, after hitting a weekly high in early trading, and is heading towards the nearly seven-year high of 125.1 in March.

The Bank of Japan is keeping Japanese yields lower and the widening spread between US and Japanese yields is weighing on the yen.

The pound was at $1.30750, falling back towards $1.30 last month, its lowest since November 2020, while the Australian dollar held at $0.7574, near Tuesday’s nearly 10-month high. after the Reserve Bank of Australia signaled that higher interest rates were approaching.

Bitcoin was slightly softer around $45,300.

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