US Dollar Under Pressure as ECB President Offers Hawkish Clues

US Dollar Under Pressure as ECB President Offers Hawkish Clues

Posted Friday, October 29, 2021 by
Aiswarya Gopan • 2 min read

A day after the ECB meeting, the US dollar is trading close to the lowest levels seen since a month after investors start betting on the central bank hiking interest rates soon soon. At the time of writing the US dollar index DXY is trading at around 93.43.

The dollar index declined to a one-month low after ECB President Christine Lagarde hinted that the dovish outlook was not helping some quarters of the Eurozone economy. Traders took her statement to indicate possible interesting in turning hawkish soon, sending the Euro to the highest levels seen late September, just under the $1.17 mark.

Meanwhile, the Sterling is holding mostly steady around a one-month high against the US dollar ahead of the BOE meeting scheduled for next week. Investors are cautiously optimistic that the UK central bank could announce a rate hike in its upcoming meeting, making it one of the first among the major central banks to do so.

While the Fed is expected to start tapering its monthly asset purchases in November, other leading central banks have also started signaling interest in reversing their dovish stance. This week, we heard similar statements from the RBA and BOC, in addition to the most recent ones from ECB. Such statements dented the optimism that the Fed could take the lead in monetary tightening, a sentiment which had supported a rally in the US dollar against other leading currencies a few sessions ago.

In addition to rising expectations for other central banks to turn hawkish soon, the greenback is also facing some pressure from an improvement in the risk sentiment. Strong earnings reports in the US, especially among Big Tech, have sent investors away from the safety of the dollar and towards riskier equities even as the more volatile cryptocurrency market also experiences a bull run.

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