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Title: Dollar Stabilizes Below 20-Year High; Bostic Comments in Focus

May 10, 2022 03:06AM ET

By: AnalysisWatch

The U.S. dollar stabilized in early European trading Tuesday after falling from a two-decade high as traders reassessed the likelihood of aggressive interest rate hikes by the Federal Reserve.

At 3:05 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, edged up to 103.725 after rising as high as 104.19 overnight, hitting a fresh 20-year high.

Weighing on the dollar Monday were remarks by Atlanta Federal Reserve President Raphael Bostic, who downplayed rumors that the U.S. central bank would raise interest rates by more than half a percentage point at its next meeting in June.

The Federal Reserve announced a 50 basis point rate hike last week, its largest increase since 2000, and expectations are growing that the central bank will raise rates even more to combat inflation, which is at its highest in 40 years.

U.S. government bond yields have risen steadily on expectations that the Fed will raise rates sharply, but Bostic's comments caused the yield on 10-year U.S. Treasuries to fall on Tuesday, although it is still above 3%.

USD/JPY traded 0.2% higher at 130.44, but was still below the new 20-year high of 131.34 reached overnight. The EUR/USD was up 0.1% at 1.0563, while the GBP/USD was up 0.2% at 1.2354.

There will be many more speeches from Fed policymakers in the coming week whose remarks could move the market, but the main focus will be on the US consumer price inflation report due on Wednesday, which is expected to show that price growth slowed slightly in April.

As a result, USD/CNY fell 0.3% to 6.7084, just shy of an 18-month high, after Shanghai further tightened its easing measures as China reaffirmed its zero COVID policy.

The Australian dollar rose 0.2% to 0.6967 after falling overnight to 0.6920, its lowest level since July 2020, and the Canadian dollar rose 0.1% to 1.3014 after falling overnight to 1.3037, its lowest level since November 2020.

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