Topline
The U.S. dollar hit a two-decade high on Monday, responding to Federal Reserve Chairman Jerome Powell’s comments that the central bank will continue to tackle inflation “forcefully”—signaling further interest rate hikes.
The value of the U.S. dollar hit a 20-year high on Monday morning.
Key Facts
The Dollar Index—which measures the U.S. currency against a basket of six other major currencies—rose more than 0.6% early on Monday to a high of 109.44 points before settling at 109.22.
The index briefly hit 109 in July this year but Monday’s peak is the highest level it has been since 2002.
In a note earlier this month, investment firm LPL said the Federal Reserve’s rate hike efforts would be “bullish for the US dollar.”
A stronger dollar is bad news for the stock market as around 30% of the revenue earned by S&P 500 companies is from markets outside the U.S., the LPL note added.
Economists cited by Reuters noted that the index could rise even further later this week and edge close to 110 points.
Big Number
13.5%. That is the amount by which the value of the U.S. Dollar has appreciated since the start of 2022.
Key Background
In a speech on Friday, Powell indicated that the Federal Reserve will continue with its aggressive rate hike plan as it works to curb record-high inflation levels, but warned that the process would not be painless. Powell expects the Fed’s moves will lead to a “sustained period of below-trend growth” which will cause “some pain” for households and businesses. The speech once again raised fears of a recession and caused both the S&P 500 and Nasdaq to slump by more than 3%. One key positive of a stronger dollar is that it may help ease inflation as imports of goods and services become cheaper. One key positive of a stronger dollar is that it may help ease inflation as imports of goods and services become cheaper. The U.S. imports more than it exports and in June it had a trade deficit of $79.6 billion.
Tangent
The euro fell below parity with the dollar for the second time this year last week and its value has since remained below the U.S. currency. According to foreign exchange tracker XE, the euro is valued at $0.993 as of early Monday morning. The euro’s slide was largely driven by energy concerns amid a lingering threat of Russia cutting off natural gas supplies to the eurozone.
Further Reading
Dollar hits 20-year high as markets hunker down for higher rates for longer (Reuters)
Source: https://www.forbes.com/sites/siladityaray/2022/08/29/us-dollar-hits-two-decade-high-heres-what-that-means/