On Tuesday, the American currency spiked to a two-week high, as investors turned a deaf ear to riskier assets after US Treasury Secretary Janet Yellen had said that interest rates might be raised gradually, sending shockwaves into global equity markets amid frets that a higher interest rate in the United States would threaten further gains in so-called growth stocks which had lifted Wall St.
to multiple record closing highs last year despite the pandemic’s fiscal consequences. Apart from that, latest remarks from US Treasury’s Yellen came against the backdrop of a rising inflation indicators in the United States, while as of March 2021, US inflation was hovering at 1.5 per cent, shy of US Fed’s target of 2.0 per cent, however, investors’ worries jittered further amid a flurry of upbeat US economic data including a rise in orders for US-borne core capital goods following a sharp pickup in domestic demands.
Adding further strains, apart from a $1.9 trillion in fiscal stimulus bill signed off into a law by the US President Joe Biden earlier in March, another proposal to yield $2 trillion in fresh capital inflows into the US economy by means of infrastructure projects as proposed by the Biden Administration, stoked worries of further rise in inflation indicators.
US Dollar rises to two-week high after Yellen’s comment on rate-hike
Citing statistics, in the day’s FX market closure, the US Dollar Index measured against a basket of six major currencies on an average gained 0.3 per cent to 91.27 after taking a tattering header of 2 per cent last month, while the greenback gained 0.8 per cent against Australian Dollar to $0.7704 and 0.9 per cent against New Zealand Dollar to $0.7138.
Besides, the bloc’s common currency euro, shared among 19 countries in the 26-member eurozone, shed 0.4 per cent to $1.2013, while the safe-haven Japanese Yen toppled 0.2 per cent versus its American counterpart to 109.32 yen per Dollar.
Meanwhile, referring to a renewed safe-haven bid of American currency, a chief market strategist at Cambridge Global Payments in Toronto, Karl Schamotta said, “After improving dramatically through the first quarter, U.S.
economic expectations have converged with reality, meaning that surprises are no longer skewed toward the positive. For many investors and momentum traders, some rebalancing, away from risk-sensitive currencies and toward havens, is making a lot of sense at this juncture. ”