The value of the dollar is rising as the value of risky assets declines while it is only recovering from its 1998 lows

The value of the dollar is rising as the value of risky assets declines while it is only recovering from its 1998 lows

Fears of a global economic slowdown and wagers on sharp interest rate hikes by the US Federal Reserve pushed the safe-haven dollar to a new four-week high against a basket of currencies on Monday. The impact of Friday’s hotter-than-expected US inflation statistics, which prompted a broad-based decrease in risk sentiment and fueled betting on even more aggressive policy tightening, has continued to be felt by global financial markets. Government bonds were sold off on Monday, and stock markets around the world took a beating.

Traders have a lot on their plate this week, including policy meetings by the Fed, the Bank of England and the Swiss National Bank. The U.S. Federal Reserve is widely expected to raise its key interest rate by 50 basis points on Wednesday, with some, including Barclays and Jefferies, expecting to the Fed to raise rates by 75 basis points.

“The USD extended its gains from Friday as risk continues to unwind across the board,” said Brad Bechtel, global head of FX at Jefferies said in a note. The U.S. Dollar Currency Index, which tracks the greenback against six other major currencies, was up 0.4% at 104.83, within sight of the 2-decade high of 105.01 touched in mid May.

“A 75 bps (basis points) move is definitely going to be a surprise for some who are holding a hard line on 50 bps,” Bechtel said, adding he expects the dollar index to move higher on such a move. The battered Japanese yen, floundering near lows against the greenback, not seen since 1998, was one major currency that advanced against the dollar on Monday.

Sterling fell to a one month low against the dollar on Monday, coming under selling pressure after data showed Britain’s economy had unexpectedly shrunk in April. Tensions with the European Union over post-Brexit trade with Northern Ireland also weighed on the pound, which was down 1.1% to $1.2175. Bitcoin slumped 19.1% on Monday after major U.S. cryptocurrency lending company Celsius Network froze withdrawals and transfers citing “extreme” conditions, in the latest sign of how financial market turbulence is causing distress in the cryptosphere.

The yen found some support from comments by Japan’s top government spokesperson on Monday that Tokyo is concerned about the currency’s sharp fall and stands ready to “respond appropriately” if needed. The Bank of Japan (BoJ) has so far resisted pressure to tighten policy, weakening the country’s currency. On Monday, the dollar was 0.6% lower at 133.58 yen. The Australian dollar, seen as a liquid proxy for risk appetite, fell 1.3% and the New Zealand dollar fell 1.4%.

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