The dollar index, which measures the dollar’s movements against six major currencies in a basket of currencies, rose above 100 for the first time in nearly two years, boosted by expectations that the U.S. Federal Reserve (Fed) will accelerate interest rate hikes to bring down inflation.
Yesterday at 11:48 p.m.. ET, the dollar index rose 0.13% to 99.88 after reaching 100.00 the previous day, the highest level since May 2020. In addition, the dollar rose 0.35% to 124.35 yen, while the euro rose 0.28% to 135.18 yen and fell 0.08% to $1.087.
Minutes from the Fed’s March meeting show that the Fed committee favored balance sheet reductions and accelerated rate hikes to boost inflation.
By May, the Federal Reserve Board has agreed to trim the balance sheet by $95 billion per month and support a 0.50% rate hike in 1-2 meetings if inflationary pressures persist.
Financial markets expect the Fed to raise interest rates by 0.50% at each of its May and June meetings. Rates are expected to reach 2.50%-2.75% by the end of this year. That would be more than 2.4%, a level that most Fed judges consider neutral.
If the Fed raises rates in line with market expectations at its May meeting, it would be the Fed’s first 0.50% rate hike since 2000.
Meanwhile, the yield on 10-year U.S. Treasury notes also reached a three-year high.
The yield on the 10-year U.S. Treasury note rebounded to 2.715%, its highest level since March 2019, while the yield on the 30-year Treasury bond rose to 2.751%.
Bond prices and bond yields move in opposite directions.