US Dollar Regains Overt Bullish Momentum Following Hawkish US Fed Stance

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The US dollar gained against a basket of other top currencies on Thursday, following hawkish comments and plans by US Fed Chair Jerome Powell in the recently-concluded FOMC meeting.

The greenback tapped a two-month high of 1.1193 per euro and held at the 115.06 top against the yen, this morning. The USD also hit its highest point in over a year against the kiwi, cleared a seven-week top against the Aussie, and recorded its best move against the pound since early January.

The dollar also climbed against the broader emerging market currency list as interest rate futures markets moved hastily to price in as many as five Fed rate hikes in 2022.

US Fed to Begin Rate Hike in March

The Fed chair told the press after the meeting that members of the board share a unanimous opinion to begin increasing interest rates in March to curb rising inflation.

That said, Powell emphasized that no concrete decisions had been taken on if the apex bank would consider a 50-basis point hike, indicating that the possibility remains. Instead, he noted that the economy is in better shape than in the most recent hiking cycle and inflation much higher. Powell added: “There’s quite a bit of room to raise interest rates without threatening the labor market.”

Meanwhile, Bank of Singapore strategist Moh Siong Sim noted that he expects four rate hikes in 2022, one for each quarter, arguing that Powell did not rule out more than four.

Notably, the USD’s overnight spike of 0.7% against the yen was the most significant in over two months, and bond and equity markets are reacting to the possibility of higher interest rates.