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Weekly roundup: US dollar bolstered by Fed rate hike bets

currency-newsWeekly roundup: US dollar bolstered by Fed rate hike bets
After closing 2021 on a sour note, the US dollar was back in fine form at the start of this year, strengthening amidst speculation the Federal Reserve could start hiking interest rates earlier than previously expected this year.

This speculation was supported by the publication of the minutes from the Federal Open Market Committee’s (FOMC) December policy meeting.

The minutes noted in light of rising inflation and improving labour conditions, members of the FOMC may be willing to ‘increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated’.

Rising rate hike bets also bolstered US Treasury yields, which helped shore up demand for the US dollar in the first half of the week.

USD demand was further underpinned by a prevailing risk-off mood as investors grew increasingly concerned by the sharp rise in Covid cases in many parts of the world, with the US even passing one million daily infections.

However, the US dollar was unable to sustain these gains through the end of the week as US payrolls disappointed again in December, with the US economy added fewer than half the jobs forecast.

Looking ahead, the US dollar looks poised to jump again this week with the publication of the latest US consumer price index. December’s figures are expected to report US inflation rocketed to 7% likely increasing bets the Fed will start raising interest rates in March.

Also of note to USD investors will be the latest US retail sales figures. Will a stalling of sales growth at the end of 2021 temper the US dollar’s upside potential at the end of the week?
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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