The market stopped profit-taking on the US dollar, then turned to applaud the Fed's hawkish decision.
The market halted profit-taking on the greenback last Friday, then turned to applaud the Fed's hawkish decision to push up the US dollar index (DXY) to close at 96.67. The movement of DXY tends to be consolidative in trading earlier this week (20/December).
Last week's series of meetings and policy announcements by the central bank left quite a deep imprint on the fundamentals of various currencies. Market participants mainly highlighted the Fed's FOMC decision to accelerate tapering and projected three rate hikes by 2022. The decisions of the British and Norwegian central banks to raise interest rates impromptu were also in the limelight. The ECB and BoJ's steps to cut stimulus tactical also received rave reviews.
The greenback corrected to the 96.00s after the FOMC meeting due to profit-taking and surprises from other central banks' announcements, but then strengthened to 96.67 levels on Friday. Analysts consider this dynamic to strengthen the fundamentals underlying USD appreciation.
"Events this week did reinforce our view that while normal trading activity resumes in January, the US dollar is likely to remain underpinned and strengthen further - particularly against the low-yielding currencies of the G10," said Lee Hardman, analyst. currency MUFG, "The Fed is poised to be more active in policy tightening versus other G10 central banks, while the liquidity draw (tapering -red) will also be conducive to supporting the dollar."
After the British monetary authority announced a 15 basis point BoE rate hike last week, GBP/USD had soared to a record high in almost two weeks. However, the pound-dollar rate immediately subsided again at the weekend. The reason is, the projection of the Fed's rate hike in 2022 is much more and faster than the BoE.
Some analysts even suggest the Fed could raise interest rates even more in 2022 than currently projected. Similar speculations have the potential to grow along with the release of upcoming US economic data until the next FOMC meeting. However, those fundamental considerations may also have less effect on year-end trading.
Hardman cautions, "We may enter a trading phase over the next few weeks in less liquid market conditions, where FX moves may disengage from the fundamental drivers."
Post a Comment for "Dollar gets more solid, year-end dynamics lack liquidity "