The dollar gauge set to end the week has hardly changed, as traders aren’t taken aback by the hawkish Federal Reserve pivot

The US dollar index is set to end the week virtually unchanged, despite the release of the Federal Reserve minutes showing a hawkish pivot away from an accommodative policy, which has led to massive sell-offs in the stock markets and to greater expectations of aggressive tightening in the coming months.

The DXY index,
-0.60%,
which traded in a relatively narrow range throughout the first week of the new year, hovered around 95.7 on Friday – a touch below what it was on Monday.

Theoretically, the dollar should go up with the prospect of higher rates in the United States, but that also depends a lot on what is happening in the rest of the world. In this week’s case, forex traders appear to be focusing more on ending US interest rates and less on being aggressive, according to Tom Nakamura, currency strategist and co-head of fixed income at AGF Investments in Toronto.

“There is a little more attention not necessarily on the rate movements to come in the next few months, but on whether we are just pushing the rate hikes forward and getting a busier cycle early in the period. but leaving us in the same place we would have been in six months anyway, ”Nakamura said by phone on Friday.

“It’s fair to say that generally as the market approaches the Fed’s first hike, we should see the dollar appreciate broadly,” he said. “That is not really the case in this case, however, particularly because the rest of the world’s central banks are following, more or less, at a time when the peak of growth is behind us and could limit how far the Fed can go. “

The dollar’s lack of movement has been accompanied by a pattern of low volatility that has prevailed in the 24-hour currency market for the past several weeks, according to Jonathan Petersen, market economist at Capital Economics. Even the disappointing December U.S. non-farm payroll report didn’t have much of an impact on the currency market, he wrote in a note.

Read: US gains just 199,000 jobs in December as businesses face labor shortage and omicron

This was not the case for the rates market, however, where rate traders focused on the more positive parts of the jobs data and continued to factor in increasingly rapid tightening by the Fed. . Meanwhile, the American stock indices with the exception of industrialists Dow DJIA,
-0.01%
Most traded lower on Friday afternoon in a turbulent session in which the monthly jobs report offered something to both optimists and pessimists.

Beyond the dollar, emerging market currencies like the South African Rand, Hungarian forint and Chilean peso have held up surprisingly well this week to expectations that the more the Fed hikes this year, the less the banks. emerging market powerhouses will need to do. because the burden will be shared ”in the fight to contain ever higher inflation, Nakamura said.

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