Investors run to dollar on strong prospects of interest rates hike

The fallout from Russia’s invasion of Ukraine may set the stage for further gains in the dollar, as geopolitical uncertainty and concerns about economic growth in Europe further increased the appeal for the greenback.

The U.S dollar is climbing against the safe-haven yen, reaching a five-year high on strong expectations that the U.S central bank will go hawkish. Though commodity-linked currencies dropped after record profit-taking.

After reaching its highest level since January 2017, the dollar rose 0.7%-to-116.97-yen JPY as markets prepare for Fed tightening.

Currency experts postulate that it’s likely that the Fed will hike rates from their pandemic low this week, while the Bank of Japan will probably remain an outlier.

Following two days of gains on profit-taking off two-year highs, the US dollar gained against a basket of rival currencies in European trade. Investors are closely following the Ukraine-Russia peace talks.

In part, because investors seek shelter from market volatility, the U.S. Dollar Currency Index has surged 3% year-to-date and is at its highest level in 21 months.

• Stocks around the world have been hammered and commodity prices are on a roller coaster.
• The British Sterling dropped to a 16-month low against the greenback and posted its third consecutive weekly fall.
• Prices rose 0.8% month-over-month in February as expected, after rising 0.6% in January.
• In the latest reading, core prices were up 0.5%, in line with expectations and slightly lower than the previous reading’s 0.6% gain.
• Consumer prices are continuing to rise, and Bank of America has predicted seven rate hikes for this year.

The economy and markets could be impacted by a sustained increase in the dollar. While strong currencies tend to hurt exporters, they may also aid the Fed in containing inflation.