FOREX-US dollar rises to nearly two-year high on hawkish Fed comments

By Gertrude Chavez-Dreyfuss

NEW YORK April 5 (Reuters)The US dollar hit its highest in nearly two years on Tuesday, boosted by hawkish comments from Federal Reserve officials who pushed for a quick reduction in the central bank’s bloated balance sheet, with one of them expressing openness to hefty rate increases of half a percentage point .

The dollar index rose as high as 99.526 =USDthe highest since late May 2020. It was last up 0.5% at 99.498.

Fed Governor Lael Brainard, usually one of the Fed’s more dovish policymakers, said on Tuesday she expects methodical interest rate increases and rapid reductions to the Fed’s nearly $9 trillion balance sheet to bring US monetary policy to a “more neutral position” later this year. Further tightening will follow as needed.

Kansas City Fed President Esther George, a voting member of the Federal Open Market Committee, also in remarks on Tuesday supported a rapid run-off of the Fed balance sheet, and said as well that “50 basis-points is going to be an option that we’ll have to consider.”

“The dollar’s moves were primarily a function of Brainard’s hawkish comments today. She was very clear on two things,” said Erik Nelson, macro strategist at Wells Fargo Securities in New York.

“One, the Fed wants to reduce the balance sheet quite aggressively and much more quickly than the last cycle. And two, the Fed is really open to a 50-basis point hike and could do so at any point over the next few meetings. This is the kind of language that you don’t see from many Fed officials, especially Brainard,” Nelson added.

The dollar rose 0.7% against the yen to 123.63 yen JPY=EBS after earlier hitting a one-week peak of 123.66. On March 28, the dollar soared to 125.105 yen, the highest level since August 2015.

The euro, on the other hand, struggled amid concerns about the outcome of the French elections. It was down 0.6% at $1.0901 EUR=EBS and matched a low of $1.09 hit on March 14. Just days earlier amid increased optimism over an end to Russia’s invasion of Ukraine, the euro rose to a one-month high of $1.1185

President Emmanuel Macron is still ahead in opinion polls but his far-right eurosceptic rival Marine Le Pen has been closing the gap, and a poll on Monday put victory within the margin of error, unnerving investors ahead of the French presidential election’s first round on Sunday .

Worries about the French elections have prompted traders in the euro to buy put options around $1.07-$1.09 for end-April expiry, Refinitiv data shows.

Expected price swings for the euro, or implied volatility EUR1MO=FNclimbed to three-week highs as traders braced for more sanctions.

In other currencies, commodity units rallied led by the Australian dollar, boosted by the prospect of policy tightening by the Reserve Bank of Australia (RBA).

The RBA dropped its pledge to be “patient” on tightening policy, while holding the key rate at a record low for now, as was expected. The New Zealand and Canadian dollars, as well as the Norwegian crown, rose in tandem with the Aussie currency.

The Aussie pink dollar 0.4% to US$0.77521 AUD=D3while the New Zealand dollar gained 0.2% to US$0.6937 USD=D3.

“We’re starting to see monetary policy elsewhere catch up with the Federal Reserve,” said Simon Harvey, head of FX analysis at Monex Europe, in London. “The general belief on current Fed pricing is that it is pretty well-priced and there isn’t much room to ratchet expectations higher.”

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Currency bid prices at 3:41PM (1941 GMT)

Description

RIC

Last

US Close Previous Session

Pct Change

YTD Pct Change

High Bid

Low Bid

dollar-index

=USD

99.5020

98.9850

+0.54%

4.013%

+99.5260

+98.8370

Euro/Dollar

EUR=EBS

$1.0901

$1.0970

-0.63%

-4.11%

+$1.0989

+$1.0900

Dollar/Yen

JPY=EBS

123.6150

122.7600

+0.71%

+7.39%

+123.6650

+122.3750

Euro/Yen

EURJPY=

134.74

134.68

+0.04%

+3.40%

+135.1200

+134.3000

Dollar/Swiss

CHF=EBS

0.9295

0.9266

+0.34%

+1.92%

+0.9298

+0.9238

Sterling/Dollar

GBP=D3

$1.3071

$1.3115

-0.33%

-3.35%

+$1.3166

+$1.3068

Dollar/Canadian

CAD=D3

1.2491

1.2489

+0.01%

-1.21%

+1.2493

+1.2403

Aussie/Dollar

AUD=D3

$0.7575

$0.7543

+0.43%

+4.22%

+$0.7661

+$0.7536

Euro/Swiss

EURCHF=

1.0132

1.0162

-0.30%

-2.30%

+1.0171

+1.0132

euro/sterling

EURGBP=

0.8338

0.8368

-0.36%

-0.74%

+0.8374

+0.8329

NZDollar/Dollar

USD=D3

$0.6939

$0.6951

-0.18%

+1.37%

+$0.7034

+$0.6935

Dollar/Norway

NOK=D3

8.7630

8.7325

+0.42%

-0.45%

+8.7670

+8.6600

Euro/Norway

EURNOK=

9.5537

9.5636

-0.10%

-4.59%

+9.6612

+9.5008

Dollar/Sweden

SEK=

9.4282

9.4155

-0.56%

+4.55%

+9.4356

+9.3490

Euro/Sweden

EURSEK=

10.2788

10.3372

-0.56%

+0.44%

+10.3495

+10.2572

World FX rateshttps://tmsnrt.rs/2RBWI5E

Australian dollarhttps://tmsnrt.rs/3JhklL2

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee and Julien Ponthus in London; Editing by Alexander Smith, Will Dunham and Mark Potter)

((gertrude.chavez@thomsonreuters.com; 646-301-4124))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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