U.S. dollar rises across the board on hawkish Fed and demand for safety

The U.S. dollar thrives in May (so far) driven by some hawkish comments from Fed officials, coupled win an increasing demand for safety among investors on economic and political uncertainties around the world, posting a series of multi-month highs against major peers.

DXY-U.S. dollar index which tracks the greenback against six major currencies, has recovered above the 104 level on Thursday morning for the first time since early March, and managing to recover the half losses of March-April’s U.S. banking turmoil.

DXY-U.S. dollar index, 2-hour chart

The bullish momentum has helped the dollar rise to a three-month high of $1.073 against the euro, to two-month highs of $1.2340 against the pound sterling, and a six-month peak of nearly ¥140 versus the Japanese Yen.

The dollar has also risen above the key 7 psychological level to the Chinese Yuan amid growing worries about the Chinese post-pandemic economic recovery and concerns over a renewed COVID wave in the country.

Adding to the above, China-exposed and commodities-sensitive currencies also retreated against the dollar, with the Australian and New Zealand dollars falling to a six-month low of $0.6530 and $0.6090 respectively.

The resilient employment sector and the U.S. economy led investors to believe that Federal Reserve will leave interest rates higher for longer in its fight against persistent inflation, especially the Core inflation which is still soaring.

Investors have also demanded the dollar’s safety against gold and bonds, following the failure of the Biden administration and Congress officials to deal with the increase of the U.S. debt ceiling before the deadline of June 1, when the Treasury has warned it would be unable to pay all its bills.