Federal Reserve Governor Jerome Powell confirmed the hawkish outlook for the US central bank’s monetary policy. The dollar reacted with a sharp strengthening after having its biggest weakening streak in two months.
There has been speculation for several weeks now about whether the US dollar will reach parity against the euro after a very long time. The fact is, it’s not far off. Practically since the end of April, the dollar-euro exchange rate has been hovering around the level of $1.05 per euro. However, the dollar weakened sharply in the past week by current standards, only to strengthen significantly again in the middle of this week.
The probability of interest rate increases is high
The reason for the appreciation of the dollar was the statement of the head of the Federal Reserve (US central bank) Jerome Powell, who assured that the central bank is ready to raise interest rates as high as necessary. This includes the possibility of the base rate rising above what experts call the neutral level.
The dollar continues to strengthen
It is one that neither stimulates nor inhibits economic activity. For the US economy, such a rate is estimated at 3.5 per cent, where the Fed’s base rate could get to by mid-2023. Analysts see Powell’s statement as a reason why the dollar could continue to strengthen.