U.S Dollar Maintains Siege Below 16 Month High

Traders assessed whether the U.S. dollar‘s recent surge could be stalling as it hovered below a 16-month peak in London trade on Thursday, losing ground after falling against the pound and yen overnight.

Following the Fed Chair Powell’s press conference and the October US NFP report, there were indications that market pricing was too aggressive in regards to how quickly the Fed will raise rates once the taper is complete. However, the October US inflation report has completely shifted the narrative of the central bank.

This week’s strong retail sales data contributed to the dollar’s recent rise, which started as a result of expectations the Federal Reserve will increase rates by the middle of next year after a strong inflation report.

As inflation increases and consumers believe that no effective policies exist to reduce the effects of rising prices, consumer sentiment fell in early November to its lowest level in a decade.

Dollar index, which measures the greenback strength against a basket of six rivals, hit 96.226 on Wednesday, the highest level since mid-July 2020.

Fed expectations have turned increasingly hawkish in recent weeks, suggesting limited tailwinds for the U.S. dollar from that factor going forward.

Some, however, saw a drop in the dollar as a buying opportunity. It has been hard to find dips lately, but anything into the low-95s is a good opportunity to buy,

BofA Securities’ monthly survey showed investors expecting around 1.5 rate hikes in 2022 based on the spread between eurozone and U.S. interest rate futures expiring in December 2022.

It could be difficult for the euro to recover much ground versus the dollar by 2022, if the Fed raises rates in the second half