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Weekly roundup: US dollar fluctuates amidst Fed rate hike speculation

currency-newsWeekly roundup: US dollar fluctuates amidst Fed rate hike speculation
Trade in the US dollar was erratic last week, with the currency infused with volatility by Federal Reserve rate hike expectations and fluctuating market risk appetite.

This initially saw the ‘greenback’ fall in tandem with US Treasury yields, as a risk-on mood prevailed amidst easing fears over the Omicron Covid variant.

This was partly brought about by a statement from US drugmaker Pfizer in which it claimed early trails had shown its booster jabs to be somewhat effective against Omicron.

Rising expectations that the Fed will bring forward its next interest rate hike helped to counter these losses at various points throughout the week, with USD investors beginning to price in a hike as early as May.

A souring of market sentiment due to fresh Omicron fears and US-China tensions, coupled with a sharper than expected fall in US initial jobless claims in the first week of December then helped the US dollar push higher on Thursday.

However, this the gave way to some notable USD profit taking at the end of the week with the release of the US consumer price index. While inflation printed in line with expectations in November, surging to a near 40-year high of 6.8%, some USD investors had been positioned for an even stronger print.

In the spotlight this week will be the Federal Reserve’s last policy meeting of 2021. Analysts suggest the Fed may announce plans to accelerate the tapering of its stimulus programme this month.

Should the Fed seek to bring an early end to its asset purchases, the US dollar could surge as this will reinforce expectations the US central bank will bring forward its next interest rate hike.
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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