The greenback briefly took the euro below $1.05 and reached its highest level in almost two years against the pound sterling, also approaching parity with the franc.
The dollar took a clear advantage Thursday over all the major currencies, supported by the monetary tightening of the American central bank (Fed), after a first misleading reaction Wednesday to the announcements of the Fed.
The greenback briefly took the euro below $1.05 and reached its highest level in almost two years against the pound sterling, also approaching parity with the franc, which it has not seen since December 2019.
The market “realizes that it was wrong yesterday” by reacting positively to the announcements of the Fed, which raised its main key rate by half a percentage point, to a range going from 0.75% to 1 %, explained Christopher Vecchio, an analyst at DailyFX.
More than the rate hike, traders reacted to comments from Fed Chairman Jerome Powell, who ruled out a hike at the next meeting of 0.75 percentage points that traders had so far deemed certain. .
“But the calm minds took over” afterwards, according to Christopher Vecchio, “and everyone ended up thinking that the Fed was going to raise its rates by 1.50 points (in total) in the next three meetings and that it was still very, very aggressive.”
Bond rates, which had suddenly eased on Wednesday, then jumped. The yield on ten-year US government bonds rose as high as 3.10% for the first time since.
For Juan Manuel Herrera, of Scotiabank, the advance of the dollar is largely linked to a movement of risk aversion. “The market is falling apart,” he observed, agitated by “uncertainty and volatility.”
A certain irrationality has taken hold of investors, explains the analyst. “We sell everything”, including bonds, which traditionally serve as the ideal refuge when the wind rises in the markets. “We fall back on cash, and the dollar.”
Geopolitical and economic uncertainties, against the backdrop of the continuing war in Ukraine and the confinements which continue to paralyze Shanghai in China, mixed on Thursday with the resolute posture of the Fed to make operators lose their bearings.
The pound stumbles
The British pound did not benefit from the Bank of England’s meeting on Thursday, which also raised its rate, but only by 0.25 points, observers also lingering on the pessimistic forecasts of the BoE.
“Although the market had priced in a 0.25% rise, there was some expectation that the Bank of England would take a more aggressive stance and follow the lead of the Federal Reserve,” said analyst Susannah Streeter. Hargreaves Lansdown.
British GDP is expected to contract in the fourth quarter, the monetary institute warned on Thursday, which also anticipates a decline in activity in the United Kingdom of 0.25% for the whole of 2023 and inflation above 10. % in the fourth quarter.
For Christopher Vecchion “the Bank of England has really come out of its path of raising rates and has adopted a relatively more cautious tone” regarding its monetary tightening.
The euro, meanwhile, is not helped by the European Central Bank (ECB), which is still reluctant to raise its rates as the conflict continues on its borders, in Ukraine.
The European economy is “de facto stagnant”, after a timid growth of 0.2% in the first quarter, said Fabio Panetta, member of the ECB’s executive board, in an interview with the daily La Stampa on Thursday.
This “complicates the choices” of the guardians of the euro, because “a monetary tightening aimed at containing inflation would end up curbing an already weakened growth”, warns Mr. Panetta, ranked among the “doves” followers of a monetary policy supporting the economy.
Philip Lane, chief economist of the ECB, judges for his part that “the timetable for completing this process of (monetary) normalization is inherently uncertain”.
On the cryptocurrency side, bitcoin paid the price for the lack of market risk appetite and fell 7.5% to $36,820, its lowest since late February.
The market will end the week with official US employment data on Friday.