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U.S. Dollar Soars as Fed Officials Hint at Possible Rate Hikes

The U.S. Dollar reaches a two-month high following signal from Federal Reserve officials about potential further rate hikes, stirring up investor interest.


Federal Reserve Officials Anticipate Rate Hikes

Federal Reserve Presidents James Bullard and Neel Kashkari hinted on Monday that the central bank might need to maintain a rising rate trend should inflation remain high. According to Edward Moya, senior market analyst at OANDA, their hawkish statements are drawing investor focus back to inflation, providing significant support for the U.S. Dollar.

The Federal Reserve Chair's View on Inflation

On the other hand, Fed Chair Jerome Powell's recent comments were interpreted as dovish, indicating a possible contrasting view within the central bank. While the overall narrative has been hawkish, Powell's stance seems less so. His thinking will be scrutinized in the Fed's May meeting minutes, set to release on Wednesday. Powell remains uncertain if further rate hikes will be necessary, weighing the impact of past borrowing cost hikes and recent bank credit tightening against persistent inflation.

Market Bets on Rising Fed Funds Rate

Market participants are increasingly wagering on a high Fed funds rate, with a nearly 30% probability of a rate hike in June. The Fed funds rate is projected to be around 4.75% by December. This speculation has resulted in the U.S. Dollar reaching a two-month high of 103.65, measured against a basket of major currencies, and a high of 138.91 against the Japanese yen.

Eurozone Economic Indicators and Debt Ceiling Talks

Meanwhile, the euro barely holds above a two-month low, following data showing a slowdown in business growth in the Eurozone. On the home front, investors are eyeing when the U.S. Congress will raise the country's debt ceiling. Discussions are ongoing between White House and Republican negotiators to resolve a deadlock over the government's $31.4 trillion debt limit. Niels Christensen, chief analyst at Nordea, asserts that any agreement should spur more risk-on sentiment, which could be negative for the Dollar.