Title: Dollar Surges on Aggressive Fed Expectations; Euro Slips

Apr 06, 2022 03:00AM ET

By: AnalysisWatch

The U.S. dollar gained Wednesday on expectations of aggressive monetary tightening by the Federal Reserve, while the euro was weighed down by the prospect of additional sanctions against Russia.

At 3 a.m., the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 99.640, just below its highest level since May 2000.

Key to the dollar's appreciation were remarks by Federal Reserve Chairwoman Lael Brainard, who is still awaiting confirmation as vice chairwoman of the U.S. central bank, calling for interest rate hikes and a rapid reduction in the Fed's balance sheet to move U.S. monetary policy to a "more neutral position" later this year.

Speaking at a Minneapolis Fed conference, Brainard said, "I think we all absolutely agree that inflation is too high and that bringing inflation down is of the utmost importance."

Meanwhile, EUR/USD fell 0.2% to 1.0884, its lowest level in nearly a month, after the U.S., European Union, and Group of Seven agreed on a new round of sanctions against Russia, including a U.S. investment ban on the country and an EU ban on coal imports.

The USD/JPY rose 0.3% to 123.91, approaching the seven-year high of 125.10 reached in March, with the widening gap between U.S. and Japanese yields weighing on the yen.

GBP/USD fell 0.1% to 1.3062, while AUD/USD held at 0.7580, maintaining Tuesday's strength after the Reserve Bank of Australia signaled a rate hike soon.

USD/PLN rose 0.2% to 4.2671 and EUR/PLN gained 0.1% to 4.6467 ahead of the Polish central bank's latest meeting on Wednesday, which is expected to lead to a seventh consecutive rate hike to counter rising inflation.