Last week, the value of the dollar against a basket of currencies rose in global markets after U.S. Federal Reserve Chairman Jerome Powell stated that he expects further interest rate increases.
The dollar index, which shows the movement of the value of the U.S. dollar against the other six major world currencies, strengthened last week by 0.6 percent, to 102.89 points.
At the same time, the exchange rate of the dollar against the European currency rose by 0.5 percent, causing the price of the euro to slide to 1.0890 dollars.
The price of the dollar also increased against the Japanese currency, by 1.3 percent, to 143.70 yen, close to the highest level in seven months.
After the dollar’s value against the basket of currencies slid to its lowest level in over a month a week earlier, the U.S. currency somewhat recovered last week.
The question arises as to how much interest rates will increase, and Powell indicated that this will depend on future economic indicators, and regarding speculation that the Fed could start cutting rates by the end of the year, Powell stated that he does not expect rate cuts anytime soon.
After more than a year of rising interest rates, the cycle of increasing the cost of money in the U.S. is nearing its end. However, questions remain as to whether the Fed will raise rates once or twice more this year, to what levels, and how long the cost of money will remain at these elevated levels.
As inflation in Western economies continues to remain at high levels, central banks continue to raise the cost of money.
Last week, investors were surprised by the British and Norwegian central banks with a more aggressive than expected increase in key interest rates, by 0.50 percentage points.
The Swiss central bank also raised rates, and further rate increases are expected in the eurozone.
On the other hand, the Chinese central bank lowered interest rates to stimulate economic growth, which is enabled by relatively low inflation.
Inflation in Japan is not as high as in Western countries, so the Japanese central bank continues to pursue an extremely accommodative monetary policy. However, this has put pressure on the yen, causing its exchange rate against the euro and the dollar to fall to the lowest levels in several months.
