The Dollar Index climbed 0.72% to 103.70 points, close to its December 2002 peak hit Thursday at 103.93 points.
The “king dollar” consolidated its reign on Monday, approaching its highest level in almost 20 years against the major currencies, boosted by expectations of a rate hike by the United States Federal Reserve (Fed) on Wednesday.
The Dollar Index, which compares the US currency to a basket of other currencies, climbed 0.72% to 103.70 points, close to its December 2002 peak hit Thursday at 103.93 points.
The greenback was buoyed by tight bond yields, with the yield on 10-year U.S. Treasuries hitting the 3% threshold for the first time since 2018 in mid-session in New York.
“The 10-year yields at 3% were to be expected for a long time,” warned Mazen Issa of TD Securities.
“We were used to a world of very low interest rates, but we are facing a new inflation paradigm and we have to reacclimate ourselves to what a world with higher rates looks like”, underlined the analyst.
He also pointed to the high volatility of the equity market “which is also going through a transition cycle with the prospect of higher rates”. “No more free money!”, he summed up.
The American Central Bank (Fed) meets on Tuesday and Wednesday and the markets await new signals on the pace of monetary tightening. 99% of investors predict a 50 basis point hike in key rates to set them at between 0.75% and 1%, the first turn of the screw of this magnitude in more than 20 years.
Investors expect these overnight rates, which condition all other credit, to rise to 3% by 2023 in an effort to tame inflation.
These conditions supported the dollar, which is becoming more profitable: “they say that the dollar is king, it’s not for nothing”, reminded Mazen Issa.
“With higher interest rates coming from the United States and global growth prospects decelerating with the war in Ukraine, this is not a constructive outlook for the euro,” added the TD Securities specialist.
The euro fell against the greenback (-0.36% to 1.0507 dollars for one euro) but tried to cling to the threshold of 1.05 dollars, below which the European currency had briefly fallen on Thursday, for the first time since early 2017.
Against the American currency, the pound remained close to its lowest since the summer of 2020, dropping 0.69% to 1.2487 dollars.
The Bank of England (BoE) meets for its part on Thursday and analysts expect it to raise rates again by 25 basis points. But at the same time, Governor Andrew Bailey has recently signaled signs of slowing growth and demand due to rising prices.