Reports On Interest Rates Spike Trigger A Strong Dollar

On Friday morning, the greenback gained against the euro for the second time this week. With inflation on the rise, central banks are now expected to raise interest rates.

In the past week, the euro fell by 0.6%, pushing the dollar to its highest level in 16 months. Although it is still vulnerable as fundamentals and positioning favor the dollar, it has traded at 1.137 after falling to $1.126 earlier.

 Almost half of the members of the U.S. central bank’s policy-setting committee predicted the Fed would raise its benchmark overnight lending rate – the federal funds rate – last month, putting the safe haven currency in an advantageous position.

On the heels of last week’s inflation surprise, U.S. retail sales beat expectations this week. The COVID-19 index is surging once again in Europe, while car sales plunged for a fourth straight month and central bankers insist on holding interest rates low.

As a result of a growing currency crisis in emerging markets, Turkey’s lira has dropped to a record low after the central bank – under political pressure – cut rates despite 20% inflation.

The U.S. Dollar Index, which measures the dollar’s strength against a basket of other currencies, edged up by more than 100 basis points to trade at 95.657

During early Friday, the DXY had recovered from its two-day losses, picking up bids around 95.6.

Greenback buyers were recalled from the greenback gauge after the talk concerning US stimulus and a fresh reading in the inflation gauge printed the previous pullback.

As traders reduce their positions ahead of the weekend, we can expect further easing in the DXY. While there are no major US economic data releases today, traders will be focused on central banks speech.

The ECB’s Christine Lagarde will speak at several events today in Germany. In San Francisco, FOMC member Clarida will address an Asian Economic Policy Conference.