U.S. Dollar Index Hits more than 2-year High on Aggressive Fed Hike Outlook

· Rupee Crashes

USD has been appreciating against many currencies because of macroeconomic reasons. But it is fashionable to run down INR as if the latter currency is ill-managed. The policy of foreign reserves accumulation adopted by the non-economist RBI Governor is helping to absorb some shock of rupee depreciation. The dollar index which measures the strength of USD against a basket of 6 currencies (Euro, British pound, Yen, Canadian dollar, Swiss Franc and Swedish Krona) reached its maximum in 20 years recently. It is time to include Yuan in this basket and stop demeaning the rupee.

The dollar surged to a more than two-year high on Friday,.22 April 2022, continuing to draw support from Federal Reserve Chair Jerome Powell's comments on Thursday that seemed to back a half a percentage point tightening at next month's policy meeting, as well as his remarks on a likely consecutive rate hikes this year.

The dollar index, a gauge of the greenback's value against six major currencies, hit 101.33, the highest since March 2020, It was last up 0.6% at 101.16, the largest daily percentage gain since mid-March. So far this year, the dollar index has gained 5.7%.

Powell on Thursday said a half-point interest rate increase "will be on the table" when U.S. central bank meets on May 3-4.

Fed funds futures have started to price in a third 50-basis-point hike in July, after the same increase in May and June, and nearly 250 basis points of cumulative increases in 2022.

Across the Atlantic, the euro fell 0.4% to $1.0792, after European Central Bank officials sent mixed policy signals.

ECB President Christine Lagarde struck a dovish tone on Thursday by saying the central bank might need to cut its growth outlook a day after ECB dove Luis de Guindos joined some policymakers in calling for an early end of the bank's asset buying scheme coupled with a rate rise in July.

Investors are also waiting for Sunday's run-off of French presidential elections between incumbent Emmanuel Macron and far-right challenger Marine Le Pen, with the latest polls showing Macron winning with 55% of the votes.

Le Pen's win could provoke tensions with European allies and weigh on the euro, analysts said.

Sterling fell against the dollar to its lowest since November 2020 after sales data and recent Bank of England comments signalled a possible slowdown in the expected rate hike path.

The pound fell 1.5% against the dollar to $1.2832 a, after hitting $1.2830, the lowest since October 2020.

Against the yen, the dollar rose 0.2% to 128.55 yen. The yen is still within striking distance of its weakest level since April 2002 at 129.43 yen per dollar hit on Wednesday.

Since the beginning of the year, the yen has lost more than 10% of its value against a resurgent dollar. A weak yen has raised the cost of import prices such as commodities, which are still priced in dollars.

Traders overall remained wary of intervention from Japanese monetary officials to strengthen the yen.

Japanese television broadcaster TBS reported on Friday that Japan and the United States likely discussed the idea of coordinated currency intervention to stem further yen falls during a bilateral finance leaders' meeting.

Japanese Finance Minister Shunichi Suzuki described recent yen falls as "sharp" and said he agreed with U.S. Treasury Secretary Janet Yellen to communicate closely on currency moves.