DXY: results of the week and the prospect of the dollar

 
 
 
 
 
 
 

Last week, the 4 largest world central banks held their regular meetings on monetary policy issues. As a result of the meeting, which ended last Wednesday, the Fed's interest rate was raised at once by 0.75%, and the central bank confirmed that "a further rate hike would be appropriate".

The Swiss National Bank and the Bank of England also, with the exception of the Bank of Japan, were able to surprise market participants by unexpectedly raising interest rates. Needless to say, due to the saturation of economic events, the past week turned out to be extremely volatile?

And, although the DXY dollar index ended last week with a relatively small gain, economists are still inclined to the general opinion that the dollar will resume growth.

Given the developments around the oil and gas market, a likely slowdown in the Chinese economy, as well as events in Ukraine, where Russia is conducting a military special operation, while Western countries are imposing more and more severe sanctions against it, market participants will be more inclined to buy defensive assets, including the dollar, avoiding active buys in the stock market.

If the Fed's interest rate is also raised by 0.75% at the July meeting (in particular, Fed officials Christopher Waller and Neil Kashkari said recently that they would support another 75 basis point rate hike at the July meeting), then the markets will take into account the likelihood of its growth to the level of 3.5% by the end of this year, which will make the Fed's interest rate the highest among the interest rates of other major world central banks. And this almost automatically makes the dollar more expensive in relation to other major currencies, creating prerequisites for its further strengthening against the backdrop of purchases by long-term strategic investors who prefer to receive, although not very high, but stable and guaranteed income.

DXY Chart

In view of this, the likelihood that the DXY dollar index will soon again exceed 105.00 is growing, with the prospect of further growth towards multi-year highs of 121.00 reached in the summer of 2001.

*) as of this writing, DXY dollar index futures are traded near 104.22 mark, 134 points below last week's high of 105.56, and the focus of market participants this week will be the speeches of Fed Chairman Jerome Powell in Congress (on Wednesday at 13:30 and on Thursday at 14:00 GMT).