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US dollar soars amid investor jitters and rising yields


The US dollar continued its furious ascent, hitting multi-year highs against the euro, sterling and Japanese yen, as concerns over market volatility caused investors to flock to the perceived safe-haven asset.

The WSJ Dollar Index, which measures the US currency against a basket of 16 others, rose 0.9% to 96.04 on Thursday. This marked the highest intraday level since March 2020, when the threat of the coronavirus sent investors piling into the currency.

The dollar’s rise on Thursday marks the latest victory for the greenback, which has risen in all but two of April’s 20 trading sessions, and puts the currency within striking distance of a 20-year high. The WSJ dollar index reached 97.33 in March 2020 on an intraday basis, which is 1.3% higher than currently. Any jump beyond that level would be the index’s highest level since 2002.

The strength of the dollar has been one of the few bright spots in markets this year, which have otherwise seen stock and bond prices battered by inflation, geopolitical concerns and concerns over interest rate hikes. interest of the Federal Reserve.

The dollar tends to do well when investors abandon riskier investments and seek refuge in assets they perceive to be safer. Its status as the world’s reserve currency makes the dollar a particularly attractive safe haven.

Higher rates also generally support the dollar by making US assets more attractive to investors looking for yield. Investors expect the Fed to raise interest rates aggressively this year to combat soaring inflation. This compares to the Bank of Japan,

which on Thursday reinforced its commitment to low interest rates despite rising inflation. The European Central Bank, meanwhile, will continue to lag the Fed in monetary policy tightening, ECB President Christine Lagarde said earlier this month.

The strength of the dollar has been one of the few bright spots in the markets this year.


Photo:

Photo/Zuma Press

The dollar rose 0.6% against the euro on Thursday, sending the euro below $1.05, its lowest level since 2017. The greenback also advanced 0.9% against the British pound to hit a nearly two-year high.

At the same time, the dollar appreciated strongly against the yen, gaining 1.9%. This caused the yen to fall above 130 to the dollar for the first time since April 2002.

“When two of the world’s largest central banks maintain accommodative monetary policy on a relative basis to the Fed, those rate differentials…are a big part of dollar strength,” said macro strategist Charlie McElligott. -active at Nomura. International titles.

Expectations that US growth will outpace that of the rest of the world also benefited the dollar, he said.

“The US economy is still the strongest economy in the world, hands down,” he said. “A strong dollar is rational at this point.”

Related video: An inverted US Treasury yield curve has been seen as a warning sign of recession for decades, and it looks like it’s about to reignite. The WSJ’s Dion Rabouin explains why an inverted yield curve can be so reliable in predicting recession and why market watchers are talking about it now. Illustration: Ryan Trefes

Write to Caitlin McCabe at [email protected]

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