The dollar is reaching fresh nearly two year highs lifted by looming
interest rate increases from the Federal Reserve, strong US growth,
and geopolitical jitters overseas.
The Wall Street Journal Dollar Index, which measures the US currency
against a group of 16 others has climbed in 13 of 15 sessions to its
highest level since May. 2020. The dollar has gained more than 10%
versus the Japanese yen this year and more than 5% against the euro.
The index slipped 0.6% Wednesday.
This year’s climb brings the dollar back toward levels hit during the
pandemic market panic of March 2020. When investors worldwide pop into
the currency, causing a global shortage and intervention from the Fed.
It boosts profits at companies that import goods from abroad and the
purchasing power of consumers buying from overseas. It also threatens
to hurt multinationals by making their products less competitive
abroad while increasing the cost of converting foreign revenues into
the US currency.
One major factor lifting the dollar expectations is that US growth
will outpace the recovery elsewhere. With the Fed signaling a rapid
course of interest rate increases to tame inflation. US government
bond yields jumped to multi-year highs as investors brace themselves
for the most aggressive pace of rate increases in more than 15 years,
market-based measures show investors expect the Fed will lift its
benchmark federal funds rate to 3% by year-end, and higher rates tend
to attract yield-seeking investors to a currency.