Investors are increasingly confident that the Federal Reserve will decide on another base rate hike at its next monetary policy meeting. And so bets are rising on the dollar, which would become even more attractive in such an eventuality.
Dollar at highest level since July
The US dollar had its best week since April 2020. It gained 0.61 per cent against a basket of currencies over the past seven days, reaching its highest level since mid-July this year. Against the euro, it is close to the parity it was at just a few weeks ago. Those dollar investors who wanted to acquire the euro on Friday had to pay just $1.0033 for each unit of the common European currency.
The worst is not over yet
It is investors’ expectations that the US central bank will continue to raise interest rates and fight 40-year inflation that is helping the dollar to strengthen. The market expects rate hikes despite the fact that the US economy is in a technical recession and that the annual inflation rate fell slightly in July. Investors believe that the worst is not yet over for the US economy in terms of inflation.
