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Dollar Up, but Near One-Week Low, as Fed Decision Impact Continues

Currencies Mar 17, 2022 11:38PM ET
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By Gina Lee

Investing.com – The dollar was up on Friday morning in Asia but was set for its first down week in six and remained near a one-week low, as the impact of the U.S. Federal Reserve’s latest policy decision continues.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged up 0.15% to 98.120 by 11:30 PM ET (3:30 AM GMT).

The USD/JPY pair edged up 0.16% to 118.78.

The AUD/USD pair inched down 0.01% to 0.7373 while the NZD/USD pair inched up 0.01% to 0.6880.

The USD/CNY pair edged up 0.18% to 6.3584 and the GBP/USD pair inched up 0.05% to 1.3153.

The dollar’s losses were the euro’s gain, with the single currency little changed at $1.10885 on Friday but up 1.67% for the week. Hopes for an end to conflict stemming from Russia’s invasion of Ukraine on Feb. 24 rose. Talks between the two countries continue but Thursday’s progress was elusive. Russia’s avoidance of default on its dollar-denominated debt also boosted sentiment.

U.S. President Joe Biden and his Chinese counterpart Xi Jinping will speak later in the day, where he is expected to warn China not to provide support to Russia.

The pound was higher and set for its first winning week in four. Investors continued to digest the Bank of England hiking interest rates to 0.75% as it handed down its policy decision on Thursday. The central bank also softened its language around the need for future rate hikes to "might be appropriate" from "likely to be appropriate."

However, "a more favorable diplomatic backdrop between Russia and Ukraine appears to be developing and there's more dollar index downside to be had if momentum moves toward a ceasefire," Westpac strategists said in a note.

The dollar index still looks headed to 100 and above as the Fed's hiking cycle progresses, the note added. The U.S. currency paused for breath and was set for a 1.09% loss over the period. The greenback fell to 97.724 on Thursday for the first time since Mar. 10.

The ripple effects from Wednesday’s Fed’s policy decision, which saw the central bank hike its interest rate to 0.5%, also continue. The Fed also hinted at hikes at each of its six remaining policy meetings in 2022, with some investors wondering whether the economy will be able to handle the tightening.

"A well-worn market axiom, that says sell the dollar on the first Fed rate hike, is circulating with added momentum after the dollar's failure to rally in the wake of this week's indisputably hawkish Fed," TD Securities analysts said in a research report.

The Bank of Japan also kept its interest rate steady at -0.10% as it handed down its policy decision earlier in the day. The widening policy gap with its U.S. counterpart pushed the yen to a six-year high at 119.13 on Wednesday. The yen is set for a 1.15% weekly decline after falling 2.26% during the previous session, its worst in two years.

Dollar Up, but Near One-Week Low, as Fed Decision Impact Continues
 

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Akhile Kumar
Akhile Kumar Mar 21, 2022 12:09AM ET
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Kasule Frank Mar 17, 2022 11:51PM ET
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