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The dollar is expected to have a tough week as the ECB and BOE become more hawkish

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News Tech: Friday’s dollar index headed for its worst week in nearly two years as the euro held its highest level in three weeks and the pound rose following hawkish moves by the European Central Bank and the Bank of England. The index that measures the US dollar against six major peers hit a three-week low of 95.271 after falling 2% this week. This is the biggest drop of its kind since March 2020. We’ve readjusted our positions in anticipation of a faster-than-expected Federal Reserve rate hike. That includes about five rate hikes this year.

This gave him one of the world’s most dovish central banks a sharp turnaround. “It is not unreasonable to conclude that the peak of policy divergence between the Fed and ECB has passed,” ING analysts said, adding that the divergence in policy stances between the two central banks is causing market movements. It could have been last week, he added. Euro lows hit record lows for the cycle.

“At first glance, both the (Bank of England) and the ECB are meeting market expectations, with the BoE raising interest rates by 25 basis points to 0.50% and the ECB making no policy changes. Significant and restrictive changes have been revealed,” Westpac analysts said in a note. Euro hits highest level since Jan 14 after European Central Bank President Christine Lagarde acknowledged rising inflation risks and refused to repeat earlier predictions that a rate hike this year was highly unlikely It traded at $1.1452.

The pound was at $1.3604 on Thursday after he climbed to $1.6326, his highest in two weeks. In addition to the BoE’s 25 basis point rate hike, nearly half of policymakers wanted a bigger rate hike to curb rampant inflation. The Australian dollar traded at $0.7143, unaffected by the Reserve Bank of Australia’s statement that sharply revised its inflation outlook upwards, but expected a lasting recovery in wages and living standards to push policy beyond its limits. I was happy to keep it in moderation.

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