Dollar Jumps as Fed Starts to Look More Hawkish Than Some Peers
(Bloomberg) — The dollar jumped the most in over a month after the Swiss National Bank surprised investors by cutting interest rates, while traders boosted bets that the Bank of England will ease policy as well.
The Bloomberg Dollar Spot Index rose as much as 0.5% on Thursday, the most intraday since Feb. 13, recapturing ground it lost the previous day after the Federal Reserve affirmed projections for three rate reductions this year. Some investors had been bracing for the central bank to signal fewer cuts, with the US economy proving resilient and inflation remaining sticky. Chair Jerome Powell said it would be appropriate to lower rates “at some point this year.”
The Swiss franc fell more than 1% against the dollar Thursday as the SNB’s unexpected decision to ease ahead of global peers showed policy makers will act to prevent gains in the domestic currency. Traders also stepped up wagers on looser Bank of England policy, pressuring the pound, which lost about 1%.
“SNB’s action today is raising the pressure on the rest of the G-10 central banks to cut a bit sooner than intended, but seeing as Fed Chair Powell just spoke on a decision to hold yesterday, other currencies are falling while the dollar is retaining its strength,” said Helen Given, a foreign-exchange trader at Monex. “Powell’s comments look more hawkish than markets originally received them so the dollar’s reaping the benefits today.”
The Fed kept rates on hold Wednesday at the highest level in more than two decades, while sticking to its forecast path of easing for this year. Speculation had swirled ahead of this week’s meeting that officials would signal only two rate cuts by year-end.
“I think the market’s dovish take on the Fed is wrong and so see scope for the dollar to gain further,” said Win Thin, global head of markets strategy at Brown Brothers Harriman.
The Bloomberg dollar gauge has risen more than 2% this year, with the greenback gaining versus all its Group-of-10 counterparts.
The pound is still the strongest of that bunch versus the dollar this year, although it sank Thursday as traders amped up bets on monetary easing after two of the Bank of England’s most hawkish policymakers withdrew support for rate hikes in a decision announced Thursday.
The yen sank for an eighth day, to around 151.66 per dollar, leaving it not far from the 151.95 mark touched in 2022, the Japanese currency’s weakest level in about 34 years.
–With assistance from George Lei.
©2024 Bloomberg L.P.
