When interest rates rise, the dollar rises. This is because the Federal Reserve will need to raise rates sooner than previously projected in order to combat rising price pressures.
Market investors anticipate the Federal Reserve of the United States to intervene if inflation continues unabated and shows no signs of abating any time soon.
As inflation rises around the world, so do expectations that interest rate hikes will be necessary. This is because New Zealand is experiencing its highest price pressures in a decade, and because Bank of England Governor Andrew Bailey recently sent a new signal that the central bank was preparing to raise interest rates as inflation risks increase.
According to Win Thin, global head of currency strategy at Brown Brothers Harriman, “Global bond markets are now waking up to the dangers that inflation isn’t as ephemeral as most central banks say.”
The dollar index rose from 94.17 to 93.99, gaining only 0.3% versus a basket of currencies.
The euro increased by a tiniest amount, rising to $1.1601 from $1.1570 earlier in the day.
It’s down 5% from last year.
GBP/EUR traded as high as 0.8427, a 20-month high, before falling down to 0.8451.
The kiwi rose against the greenback to a one-month high of $0.7105 before falling back to $0.7071.
Commodity-linked currencies, such as the Norwegian krone and the Canadian and Australian dollars, have performed the best since the summer as energy prices increase, while the euro and the yen have performed the worst, according to Bank of America (NYSE:BAC) analysts on Monday.
A three-year low was approaching for the Japanese currency, with the dollar recently rising by 0.06 percent to 114.28 yen, which is close to the 114.46 level reached on Friday in October of last year.