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The US dollar index bounced back on Friday from recent declines following comments from Federal Reserve officials on interest rates that supported the currency, while the dollar was at a fresh six-year high against the yen and the euro eased.
St. Louis Federal Reserve President James Bullard called for a dramatic increase in the Fed’s overnight lending rate to more than 3% this year, and said in a statement Friday that he not only favored a half-point increase this week, but rate increases at a pace that would require half-point increases at five of the Fed’s six remaining meetings this year.
The comments follow the Fed’s decision on Wednesday to raise its key lending rate by a quarter of a percentage point. It also projected that the federal funds rate would reach a range of 1.75% to 2% by the end of 2022 and 2.8% next year.
On Friday, Federal Reserve Governor Chris Waller said economic risks around the war in Ukraine led him to vote in favor of a quarter percentage point rate increase at the Fed meeting this week.
“For the dollar, hawkish Fed speak has put some wind back in its sails. It is playing up the more hawkish outlook for Fed policy. While the Fed was hawkish this week, their outlook for rates was still generally in line with market expectations.
AUD/JPY’s soaring showed no sign of easing on Friday, with the pair surging to four-year highs above 88.00. That marks a fourth successive day of gains during which time AUD/JPY has rallied over 4.0%. AUD/JPY’s stratospheric rise showed no sign of easing on the final trading of the week, with the pair surging a further near 1.0% to hit its highest level since the beginning of 2018 around 88.30. The pair has rallied more than 4.0% from underneath 85.00 and easily taken out 2021 highs in the low 86.00s.
Economic Data
US Existing Home Sales over the last 12 months fell to 6.02M in February from 6.49M in January, larger than the expected drop to 6.10M, according to data released by the National Association of Realtors. That marked a 7.2% MoM drop in the 12-month rolling sales number in February versus January.
US energy firms this week reduced the number of oil rigs active in the United States even as crude prices continued to trade over $100 a barrel after Russia’s invasion of Ukraine stoked global energy supply concerns.
That was the second decline for the oil rig count in three weeks after it fell three in the week to March 4, rose eight in the week to March 11 and fell three in the week to March 18.
The total US oil and gas rig count, an early indicator of future output, held steady at 663 in the week to March 18, energy services firm Baker Hughes Co said in its closely followed report on Friday.
Baker Hughes said the total oil and gas count was now up 252 rigs, or 61%, over this time last year. US oil rigs fell three to 524 this week, while gas rigs rose two to 137, their highest since October 2019. There was also one miscellaneous rig added, Baker Hughes said.
US crude futures were trading around $105 per barrel on Friday, up more than 10% since Russia invaded Ukraine on 24 Feb.
Other Developments
The British pound trimmed some of the last week’s losses, finished up 1.07%. Russia – Ukraine peace talks slowed amid failure to reach an agreement. US President Biden and China’s Xi talked about Russia – Ukraine.
Wall Street’s closed the week with gains, reflecting the sudden improvement in risk appetite. Peace talks between Russia and Ukraine would continue; however, there have been mixed signals from both sides of the conflict that do not allow to reach an agreement that could trigger a truce or ceasefire.
Late in the New York session, US President Biden and Chinese President Xi Jinping held a videoconference reunion. China expressed its posture on the Russia-Ukraine conflict to the US. Chinese President Xi said that the invasion “is not something we want to see” and that “the events again indicate that countries should not come to the point of meeting on the battlefield.”
Elsewhere, once the Federal Reserve hiked rates on Wednesday, 0.25% for the first time in three years, the Fed speakers parade began.
The first official to give influential comments was St. Louis Fed President Bullard, who dissented in the meeting because he wanted the Fed to follow a balance sheet reduction plan, alongside a 50 bps increase. In the same tone, Fed’s Waller commented that the US central bank should consider a 50 bps rate hike at a certain point, while added that he expects to begin QT by July.
Late in the day, Minnesota Fed’s President Neil Kashkari said that the central bank should begin lowering its balance sheet as soon as the next meeting.
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