On Friday, the US Dollar Index (DXY) measured against a basket of six major currencies on an average had logged the strongest weekly gain in more than nine months following a flurry of hawkish remarks from Fed policymakers, while investors scrambling to grapple with an earlier-than-anticipated hawkish Fed projection seemingly had begun a meaningful re-thinking of the American currency’s bullish prospects.
In factuality, a US Dollar sell-off wave had abruptly gathered traction on Wednesday following US Fed’s unprecedently hawkish projection with a majority of 11 out of 18 Fed policymakers forecasting at least two quarter-percentage point rate-hikes before end-2023.
Adding further strains for FX traders who had priced in heavily on a likely dovish Fed projection, US Federal Reserve official James Bullard was quoted saying earlier on Friday that he along with six other Fed policymakers had projected a rate-hike as early as by end-2022, sending US Dollar Index above its 200-day moving average which on technical viewpoint suggests a further upward spiral over coming days, said analysts.
Since Wednesday the greenback had soared more than 1.8 per cent against the bloc’s common currency euro, shared among 19 eurozone member states, while the US Dollar gained over 2 per cent against the safe-haven Swiss Franc alongside its Australian counterpart.
US Dollar roars back as Fed sends bears scurrying
Citing statistics, on Friday’s FX market wind down, the US Dollar Index (DXY) had spiked to a two-month peak of 92.16. On the week, the US Dollar Index surged 1.6 per cent, marking up the steepest weekly percentage gain since September last year.
Aside from that, the Australian Dollar tumbled to its lowest since December to $0.7521 against the greenback and the Kiwis had faltered to their lowest since April at $0.6982, while the US Dollar had secured a 0.5 per cent uptick against safe-haven Japanese Yen to 110.25 after hitting an eleven-week peak of 110.8 yen per Dollar a day earlier.
British pound fell below $1.39 and reported a weekly decline of 1.5 per cent. Nonetheless, Wall Street analysts had held on to their year-end projection for euro at $1.27, compared to a $1.19 bottom on Friday. Meanwhile, referring to the US Fed’s hawkish forecast, a head of FX strategy at Westpac in Sydney, Richard Franulovich said, “The Fed sent a very crucial message, that the days of plentiful, abundant, unlimited liquidity are drawing to a close.
We can now see an end point to zero rates ... and they've told us in very plain-speaking English that they've commenced the conversation on how to commence tapering. That signal has precipitated a dramatic position unwind, because U.S. dollar shorts were based on that unending liquidity tap from the Fed, and zero rates. ”