U.S Dollar has been sitting on the king’s throne over the last few weeks. The dominating dollar index jumped at 110.79, i.e., reaching a two-decade high. Bulls have ruled the dollar index; nevertheless, after the European Central Bank’s interest rate hike by 75 basis points, the market has depicted some signs of reversal. Euro holds approximately 56.7% weight in the Dollar Index. Therefore, after the release of Europe’s aggressive monetary policy and Christine Lagarde’s statement indicating that Europe may experience further fierce hikes in the future, EURUSD boomed by 0.8%, reaching a high of 1.0072. The dollar index was trading at 108.48 at 1300 HRS PKT.
The main reason for the dollar surge over the last few weeks was the speech by the Federal Bank’s Chairman Jerome Powell at Jackson Hole, where he firmly directed toward another aggressive interest rate increase to counter the biggest enemy of the world-Inflation. As of today, investors have assigned a 85% probability for a 75 basis point surge in the U.S interest rates. On the other end of the world, Europe’s inflation has also been soaring due to the Russia-Ukraine War, with Europe’s CPI increasing to 9.1%. Inflation and Recession fear dropped EURUSD below parity. Such levels were last seen during the initial launch period of the Euro from 1999-2002. Moreover, Yen also dropped against the dollar in the last week as Japan showed strong sentiment to keep its interest rates lower. The Yen was seen at a 24-year low of$144.99. However, after the deadly slump of the Yen, the Bank of Japan’s policy makers depicted some conflict which helped the Yen to retrace a little to $142.40.
Some analysts are also of the view that this drop in dollar price may be a sign of profit taking before the weekend.