Dollar Down, but Near Two Year High as Fed’s Hawkish Stance Caps Losses

By Gina Lee – The dollar was hovering near a two-year high on Thursday after the U.S. Federal Reserve maintained its hawkish stance in its latest latest meeting minutes.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies was at 99.605 by 11:59 PM ET (3:59 AM GMT). The index hit its highest level since May 2020 overnight at 99.778.

The USD/JPY pair was little changed at 123.7.

The AUD/USD pair was down 0.43% to 0.7481, while the NZD/USD pair was down 0.36% to 0.6897.

The USD/CNY pair inched up 0.04% to 6.3622 and the GBP/USD pair ticked up to 1.3076.

Commodity currencies retreated from their recent highs as oil prices fell. The euro recovered to $1.0911 in Asian trading after hitting a one-month low of $1.0874.

“Many” policymakers are prepared to hike interest rates in 50-basis-point increments at coming meetings., the Fed’s minutes from its March meeting showed on Wednesday. The minutes also showed general agreement about trimming $95 billion a month from asset holdings which had ballooned during the COVID-19 pandemic.

Although the minutes’ content was widely within expectations, the Fed’s determination to begin as soon as May 2022 was a jolt to investors and is likely to keep the dollar elevated.

“The market has been slow to accept the reality that quantitative tightening is coming much sooner than previously expected,” Spectra Markets’s Brent Donnelly told Reuters.

“This should keep stocks heavy and the dollar supported into the May 4th Fed meeting,” he added.

Across the Atlantic, the European Central Bank (ECB) will release the minutes from its own latest meeting later in the day. Although expected to take a less hawkish stance than its U.S. counterpart, the ECB must also strike the balance between managing high inflation and preventing a recession.

However, China is taking the opposite approach, as it reiterated its intention to loosen monetary policy to help combat its latest COVID-19 outbreak and a slumping property market. The readout from a State Council meeting chaired by Premier Li Keqiang on Wednesday said that officials will use monetary policy tools at an “appropriate time” and consider other measures to boost consumption.

The broad selling of equities and other risk assets as higher interest rates loom also hurt cryptocurrencies. Bitcoin fell 5% overnight to $43,000.