- The dollar index rises to the highest level. since Dec. 1.
- Equities turn risk averse, boosting demand for the greenback.
- Fed’s Powell fails to stem the rise in US yields.
The dollar index, which tracks the greenback’s value against major currencies, has jumped to 91.70, the highest level since Dec. 1, extending Thursday’s 0.75% rise to 91.63.
The US dollar is drawing haven bids, courtesy of the Federal Reserve President Jerome Powell’s comments on Thursday.
During a Q&A session with Wall Street Journal on Thursday, Powell reiterated that the central bank would continue to buy government bonds at the current pace of $120 billion per month and did not sound too concerned about the recent rise in Treasury yields.
Longer duration yields spiked last week. Investors associated the uptick with the rising inflation expectations and brought forward the first interest rate hike’s timing to December 2022 from 2024. As such, many observers were expecting Powell to talk down yields on Thursday.
Hence, yields spiked after Powell’s speech, putting downward pressure on stocks. The 10-year yield rose nearly nine basis points to 1.57% on Thursday and clocked a 12-month high of 1.58% early today.
The S&P 500 fell by 1.34% on Thursday, and the futures tied to the index are currently down over 0.6%. Major Asian equity market indices are also trading at least 1% lower at press time.
The DXY looks set to extend gains, with the weekly chart showing a falling wedge breakout – a bullish reversal pattern.