The dollar strengthened on Friday (30th) due to aggressive tightening of monetary policy by the Federal Reserve and concerns about global growth prospects. According to the current trend, the dollar is expected to hit its best performance in seven years.
The U.S. dollar index has soared more than 8 percent this year, its biggest gain since 2015, and is now holding steady around 103.99.
Since March, the Fed has raised interest rates by a total of 425 basis points to curb soaring inflation, a move that has contributed to the dollar’s strength for most of this year. But the U.S. dollar index has fallen more than 7 percent this quarter on expectations that the Fed no longer needs to raise interest rates as quickly as it has in the past, causing the greenback to give up gains.
Moh Siong Sim, a foreign exchange strategist at the Bank of Singapore, believes that by the middle of next year, the U.S. dollar may lose its kingship and undergo a more decisive shift.
The consistent ultra-dovish Bank of Japan compared with the hawkish Fed has brought pain to the yen, which has fallen more than 13 percent this year, its worst performance since 2013. But last week’s policy change by the Bank of Japan led to a rebound in the yen as investors bet the central bank could soon abandon its controversial policy altogether.
The yen was last up 0.4 percent at 132.47 per dollar.
Sim said that the trend of the yen still depends on whether there are more policy shifts in the future, but the current situation is that Japan’s fundamental background has begun to turn in favor of the yen.
The euro edged down 0.04 percent to 1.0656 per dollar on Friday, with the single currency on track to fall more than 6 percent this year, weighed down by weak growth in the euro zone, the war in Ukraine and a hawkish Federal Reserve.
Earlier this year, the euro fell below parity against the dollar for the first time in nearly two decades.
Sterling edged down 0.01 percent to 1.2053 to the dollar, on track for its biggest drop since 2016, down almost 11 percent this year, with political turmoil posing additional risks for the currency.
Policymakers at the European Central Bank and the Bank of England have signaled further interest rate hikes next year in an effort to curb inflation at the risk of hurting the economy.
