NEW YORK: The dollar index held near 16-month highs on Tuesday after Federal Reserve Chair Jerome Powell was picked for a second term, reinforcing market expectations that US interest rates will rise in 2022.
The euro bounced off of 16-month lows, meanwhile, helped by better-than-expected business growth in the region.
Currency markets have been mostly driven in recent months by market perceptions of the different paces at which global central banks reduce pandemic-era stimulus and raise rates.
Powell’s renomination supports the view that the Fed is likely to begin raising rates in mid-2022, after ends its bond purchase program.
“Markets perceived the outcome as marginally hawkish, and futures now firmed up expectations for a hike in June from having been skewed towards July,” currency analysts at Brown Brothers Harriman said in a note on Tuesday.
The dollar index was last up 0.06% on the day at 96.514, slightly below the 16-month high of 96.61 it reached during Asian trading hours.
The euro gained 0.10% against the dollar at $1.1245, recovering after earlier hitting a 16-month low of $1.1226.
The euro had tumbled on Monday as concerns grew over new COVID-19 restrictions in Europe, with Austria entering another full lockdown and Germany considering following suit.
Germany’s health minister has called for further restrictions on public spaces.
The euro has some short-term technical support in the $1.1240 - $1.1180 area, which were the highs reached in October and December 2019, Commerzbank technical analysts Karen Jones and Axel Rudolph said in a report on Tuesday. If it breaks below this area, however, it would likely fall to $1.1000, which is the 78.6% retracement of 2020’s move, they said. The dollar hit a four-and-a-half year high against the Japanese yen of 115.08 yen.
The greenback hit a fresh seven-week high of C$1.2744 against the Canadian dollar, which was hurt by a slide in oil prices, before falling back to C$1.2710. Turkey’s lira dropped to a new record low of 12 versus the dollar. This was its eleventh record low in as many days, after President Tayyip Erdogan defended recent rate cuts and vowed to win an “economic war of independence”. In cryptocurrencies, bitcoin was trading at around $57,451. Earlier this month it had hit a new all-time high of $69,000.