Dollar at 3-month high after Powell’s comments

8 Mar 2023 , 08:45 AM

The Federal Reserve Chair, Jerome Powell, shocked investors on Wednesday by stating that interest rates may need to increase more quickly and significantly than anticipated in order to control inflation. This news sent the dollar soaring to three-month highs.

For the first time this year, the surging dollar overcame its 200-day moving average against the yen in Asian trading, reaching a high of 137.49 yen, its highest level since mid-December.

Its largest one-day movement in five months occurred overnight when the dollar soared more than 1.2% higher on the euro. The price per euro last traded at $1.0550.

The hawkish Powell contrasted with a dovish Australian central bank, causing the Australian dollar to suffer even greater losses, falling 2% overnight to a four-month low of $0.6580.

The dollar’s value versus a basket of six major currencies is measured by the U.S. dollar index, which increased 1.3% over night to reach a three-month high of 105.65.

According to Powell, who spoke to senators on Capitol Hill, ‘the most recent economic statistics have come in stronger than projected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.

He stated, ‘We would be willing to increase the pace of rate hikes if the totality of the facts were to indicate that faster tightening is merited.

Futures indicate that US interest rates will reach a peak above 5.6% and remain above 5.5% through 2023. Traders are intensely focused on the U.S. payroll data due out on Friday and the inflation data due out the following week.

The pound was last stable at $1.1832 after falling 1.7% overnight to its lowest level since late November. An almost four-month low of $0.6104 was reached by the New Zealand dollar on Wednesday morning trade after it fell 1.5% on Tuesday. 

Later in the day, the Bank of Canada announces its monetary policy and European Central Bank President Christine Lagarde delivers a speech as the blockbuster week of central bank meetings and speakers continues.

With the Canadian dollar at a four-month low of 1.3262 to the dollar and the Bank of Canada grappling with the harm hikes are causing to the economy, it is expected that interest rates will remain unchanged.

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