By John McCrank
NEW YORK (Reuters) – The dollar index fell on Friday but is expected to end 2021 up nearly 7%, with investors betting the US Federal Reserve to hike rates earlier than other major economies amid rising backdrop sudden inflation following Covid-19 stimulus initiatives.
The dollar index, which measures the dollar against six major rivals, fell 0.289% to 95,729.
Close to its best year since 2015, the dollar was supported by an improving US economy and persistent inflation that led to a hawkish turnaround by the Fed, which is now expected to start raising interest rates as early as March.
The major currencies’ best performance against the dollar in 2021 was the Canadian dollar, which has been virtually stable over the year, helped by the expectation that the Bank of Canada will begin to tighten monetary policy as early as January.
The worst performance against the US dollar was the Japanese yen, which has fallen around 10% this year.
The euro, which has the largest weight in the dollar index, fell just over 7% in 2021, with the European Central Bank (ECB) “adhering to ultra-dovish monetary policy parameters, while the Fed is accelerating its reduction and promising hikes. Scotiabank analysts said in a note to clients.
“We are seeing the continued weakening of the common currency next year to the 1.10 mark and possibly beyond, as headwinds remain firm, where only the (unlikely) probability that the ECB will increase by the end of 2022. / early 2023, possibly providing some support, ”they said. .
The euro was down around 6% year on year against the pound as Britain’s concerns over the economic impact of the pandemic eased, with analysts expecting further hikes Bank of England rates in 2022.
While the pound sterling hit its highest level against the euro since February 2020, it fell just over 1% against the dollar over the year.
The biggest loss of the year, although not considered a major currency, was the Turkish lira, which fell about 44% against the dollar in its worst year in two decades, hampered by high inflation and the Turkish government’s heterodox monetary policy. .
Copyright © Thomson Reuters.
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