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Dollar Higher; Yellen Raises Interest Rate Hike Concerns

ForexMay 05, 2021 08:02
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By Peter Nurse - The dollar pushed higher Wednesday, boosted by talk of higher U.S. higher interest rates while a selloff in tech stocks raised its safe haven appeal.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.4% at 91.308, pulling away from its recent two-month low of 90.422.

EUR/USD traded down 0.1% at 1.2007, heading back down to its key 1.20 pivot, GBP/USD was up 0.1% at 1.3893, as investors await the Bank of England policy decision on Thursday. USD/JPY rose 0.1% to 109.46, while the risk-sensitive AUD/USD rose 0.1% to 0.7715.

This bounce in the dollar came in the wake of comments from U.S. Treasury Secretary Janet Yellen suggesting rate hikes may be needed in the near future.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat,” Yellen said at a virtual meeting Tuesday. “Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates.”

Yellen later tried to row back on the significance of these remarks, but the mere mention of U.S. tightening spooked a market that has become so influenced by the Federal Reserve’s monetary stimulus.

The tech-heavy Nasdaq Composite slumped on Wall Street as investors dumped the giant tech stocks on concerns their valuations would be hit in a rising interest rates environment.

Investors are now looking to the ADP National Employment Report, due later in the day, and the April employment report, including non-farm payrolls, due on Friday. Additionally, the ISM Non-Manufacturing Purchasing Managers Index is also due later Wednesday.

“The U.S. is now about to reap the growth rewards of the experimental policy mix of massive money printing and wide scaled fiscal stimulus,” said analysts at Nordea, in a note. “The US is likely to outperform all peers growth-wise this year, which over time usually leads to a stronger USD versus other currencies as a result of the side-effects of a stronger growth pace. “

The bank targets 1.15-1.16 in EUR/USD in the second half of the year.

Elsewhere, USD/INR rose 0.3% to 73.95 after India’s central bank announced loan repayment relief as well as steps to boost credit to key sectors as the country struggled from the world’s worst outbreak of the Covid-19 virus.

EUR/NOK trades 0.1% lower at 10.0026 and USD/NOK is flat at 8.3345 ahead of the latest policy-setting meeting by Norway’s central bank. 

The Norges Bank is widely expected to maintain its key rate at zero, and “we are most interested in how they assess the latest vaccine news and the outlook for the reopening of the Norwegian economy. This is clearly the most important factor for when the first rate hike will occur,” said Nordea.

Poland's central bank is also due to meet later, amid speculation that it will change its guidance to reflect an earlier tightening of monetary policy than previously expected.

Dollar Higher; Yellen Raises Interest Rate Hike Concerns

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Comments (1)
Alun Benjamin
Alun Benjamin May 05, 2021 9:28
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Don't be lulled into a false sense of security by this article. A monster crash in all markets is peaking over the horizon. We're all DOOMED, Captain Mainwaring!
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