Dollar Up, Potentially Tighter U.S. Monetary Policy Continues to Provide Support

By Gina Lee – The dollar was up on Friday morning in Asia, hitting a one-month high against the euro as a more hawkish U.S. Federal Reserve monetary policy supported the U.S. currency.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.08% to 99.838 by 11:48 PM ET (3:48 AM GMT).

The USD/JPY pair inched up 0.04% to 123.97.

The AUD/USD pair was steady at 0.7479 and the NZD/USD pair edged down 0.13% to 0.6881.

The USD/CNY pair inched up 0.03% to 6.3624 while the GBP/USD pair inched down 0.02% to 1.3071.

The dollar index climbed as high as 99.904 in early Asia trading, its best level since May 2020. It is also up 1.2% for the week, which would be its biggest advance in one month. The Fed’s recent hawkish tone, reflected in the minutes from its latest meeting and a slew of policymakers speaking at separate events on Thursday, has also given the U.S. currency a boost.

“Recent gains in the dollar index seem fairly sustainable over the remainder of the month as markets settle on the idea of a much more aggressive Fed in the second quarter,” Monex Europe Ltd. head of FX analysis Simon Harvey told Reuters.

“However, we believe further upside in the dollar is unlikely without a recalibration of the Fed’s terminal rate in markets. This is largely due to the limited upside in current Fed pricing based upon current fundamentals.”

Across the Atlantic, the euro fell to a new one-month low of $1.0856 in early Asian trading after the European Union moved towards banning Russian coal from August 2022 onwards. These are the latest sanctions that are being discussed or already imposed on Russia following its invasion of Ukraine on Feb. 24.

The European Central Bank (ECB) is also grappling with inflation but “while ECB members have sounded relatively hawkish to the recent inflation shock, providing EUR/USD with a modicum of support around the 1.09 handle, sustained pressure from European energy prices and calls for further sanctions on Russian energy exports to the eurozone suggest further declines in EUR/USD are likely,” said Harvey.

Uncertainty in the French presidential election that begins on Apr. 10 is also hitting the euro. Incumbent Emmanuel Macron is currently ahead in the polls, but far-right candidate Marine Le Pen is also making gains.

The dollar also continued gaining against the Japanese yen, climbing to its highest level in over a week and testing a near seven-year high of 125.1 last hit in March 2022. Although the yen has steadied in the month to date after the previous month’s tumble, pressure remains as the Bank of Japan intervenes in the bond market to keep interest rates low.

In cryptocurrencies, bitcoin was around the $43,300 mark and just above its two-week low of $42,742.

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