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LONDON (Reuters) – The dollar dipped against major currencies on Monday, but generally held most of the gains of previous weeks after the Fed’s surprise hawkish tilt.
FILE PHOTO: A US five dollar bill is seen in this illustration photo on June 1, 2017. REUTERS / Thomas White / Illustration / File Photo
The dollar index lost momentum after jumping 1.9% last week – the highest since March 2020 – as the US Federal Reserve signaled the earlier than expected end of its ultra-relaxed monetary policy .
The index, which tracks the greenback against six major currencies, fell 0.2% to 92.074 from a high of 92.405 reached on Friday, a level not seen since April 13.
The Fed’s hawkish turn has weighed on markets since, although risk sentiment improved somewhat on Monday, reflected in the positive return from European stock markets.
Among the currencies that gained ground, the British pound, up 0.6% to $ 1.3877, after losing more than 2% against the dollar the week before.
The euro also gained about a quarter of a percent, to $ 1.18960. The yen was up 0.2% for the last time, losing some earlier gains.
The Fed’s hawkish policy change brought a sharp end to the recent period of low volatility and narrow trading ranges for the G10 FX, MUFG currency analysts said in a note.
The Fed has encouraged market participants to factor in more rate hikes next year by raising US short rates and the US dollar.
The Fed’s policy stance has turned a positive wind for the dollar and will be a tough environment for risky assets, Westpac analysts said.
While the dollar index has the opportunity to test highs reached in March after its recent gains, there is not enough juice for a sustained mid-term breakout beyond that, they added.
Goldman Sachs analysts agreed the dollar gains may not be sustainable, noting that other central banks will also need to consider policy normalization as their economies recover from the pandemic.
In cryptocurrencies, the recent bad bitcoin run continued with an 8% drop below $ 33,000 as China extended mining restrictions to Sichuan Province.
Crypto mining is big business in China, accounting for more than half of the world’s bitcoin production.
Reporting by Iain Withers, additional reporting by Hideyuki Sano in Tokyo; Editing by Catherine Evans and Alex Richardson
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