GRAPHIC-Dollar dominates as inflation heats up

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NEW YORK, Nov 15 (Businesshala) – Rising inflation and a potentially more bullish Federal Reserve hopes are fueling a rally in the US dollar, propelling the currency to a nearly 16-month high relative to its peers and is putting it at its greatest speed. Annual profit over six years.

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On Monday, the US Dollar currency index rose 0.3% to 95.437, its highest level since July 2020.

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Several banks, including HSBC, Citi and JPMorgan, have projected more gains for the greenback in recent days, as Wall Street speculates whether rising inflation will prompt the Fed to open up its bond-buying program and hopefully This will lead to a more aggressive rate hike. ,

Take a look at some of the factors driving the dollar’s rally.

inflation

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Inflation has warmed more than expected in recent months, prompting the argument that the Fed will have to act more aggressively to tame rising consumer prices. Higher US rates make some dollar-denominated assets, such as Treasuries, more attractive to yield-seeking investors.

The US dollar currency index jumped nearly 1% last Wednesday, its biggest one-day move in nearly five months, data after US consumer prices posted their biggest annual gain in 31 years last month.

“The dollar could be in the early stages of an uptrend if high inflation prompts the Fed to retire its bond buying program and raise interest rates ahead of current market expectations,” said Joe Manimbo, senior market analyst at Western Union Business Solutions. Inspire.”

Citi economists noted in a recent report that the US dollar index has appreciated at the start of the last four of the Fed’s hiking cycles, with an average gain of 3.1% over the first seven months. The bank expects the Fed to ramp up its $120 billion-per-month bond purchase program in January as inflationary pressures mount.

Meanwhile, analysts at UBS Global Wealth Management believe the Fed’s comparatively more stringent monetary policy could propel the euro to $1.10 by the end of 2022, up from $1.14 on Monday.

bullish bet

Net bullish positions on the dollar in futures markets have eased in recent weeks, although they still stood at $19.51 billion after flipping bearish in mid-July, according to calculations from Businesshala and US Commodity Futures Trading Commission data released in November. remain near recent highs. 5.

BofA Global Research’s bull-bear index for Exposure and View, which tracks fund managers’ reactions to FX surveys, was recently near its highest level since December 2016, indicating a bullish trend on the US currency. Is.

Strategists at BofA Global Research said in a note last week that the index, which recently softened slightly, is likely to re-adjust after the latest inflation data.

“The positioning here is not extended, but the 2020 shorts have been opened,” the strategists wrote.

emerging markets

A stronger dollar can be especially troublesome for emerging markets, making it more expensive for developing countries to pay off debt in US currency.

The dollar is up 35% against the Turkish lira this year and 5% against the Brazilian real. The MSCI Emerging Markets Currency Index is up 0.9%, on the pace of its smallest annual gain in three years.

On Monday, the lira touched a new all-time low against the dollar as concerns over another rate cut by the central bank this week continued to weigh on the currency.

Tilman Kolb, analyst at UBS Global Wealth Management, said: “As the Fed begins to tighten monetary policy, concerns around China and the pandemic persist, and many emerging markets continue to maintain sound growth outlook for developed markets.” won’t be able to.” In a note last week. “We think this means further weakness against the US dollar.”

bitcoin boom

Inflationary fears have increased the attractiveness of other assets, including oil, metals and other raw materials. Some analysts believe it has also contributed to the recent rise in bitcoin, which hit a new record earlier this month. The world’s largest cryptocurrency by market capitalization is up 120% in 2021.

Reporting by Saqib Iqbal Ahmed; Ira Iosebashvili and Andrea Ricci. editing by

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