Business

Dollar rises towards 20-year high

Euro dips after survey showed weak eurozone manufacturing output data

Reuters May 03, 2022

Experts said that uncertain domestic political situation was mounting pressure on the rupee. PHOTO: FILE

LONDON:

The dollar rose back towards a 20-year high on Monday as the euro struggled around the $1.05 mark, with investors preparing for a busy week of central bank meetings including a likely Federal Reserve interest rate hike.

The euro also came under pressure after a survey showed that eurozone manufacturing output growth stalled last month as factories struggled to source raw material, while demand took a knock from steep price increases.

Markets in Asia and London were closed for public holidays, so trading was quiet.

Investors are expecting the Fed to hike rates by 50 basis points when it meets on Tuesday and Wednesday. The uncertainty is around how hawkish Fed Chair Jerome Powell will sound in comments following the decision.

Markets are pricing in an aggressive run of rate hikes from the Fed as it tries to tame soaring inflation.

That, together with an expected slower rate of European Central Bank tightening and worries about the impact of the war in Ukraine on the eurozone economy, has sent investors scrambling for dollars and left the euro at five-year lows.

The dollar index gained 5% in April, its best monthly performance since January 2015.

“We expect the USD to stay strong versus the EUR, as a hawkish FOMC (Federal Open Market Committee) stance and geopolitical concerns will support the USD,” UBS Global Wealth Management wrote in a research note. “Short-term investors may look to sell rallies in EURUSD above $1.08.”

The wealth manager has lowered its euro/ dollar forecasts to $1.05 for June from a previous $1.11, $1.06 for September, $1.08 for December and $1.10 for March 2023.

The dollar index was last at 103.36, up 0.1% on the day. The euro lost 0.2% to $1.0525.

BNP Paribas strategists said last week that big speculative flows and not concerns about a worsening economic outlook explained the euro’s slide to a five-year low below $1.05 this week.

Published in The Express Tribune, May 3^rd, 2022.

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