The dollar fell at the strongest pace since January. Negative factors outweighed the oil rally

The dollar showed on Thursday, March 19, the strongest decline since January, having lost part of the gained over the past three weeks due to a sharp increase in oil prices. Investors are worried about central bank warnings about risks to inflation due to the energy shock, which reduces hopes for further rate cuts or even threatens to raise them. This also has a negative impact on bonds.

The Bloomberg Dollar Spot Index fell 0.7% at the end of trading on March 19, its worst performance for the day in about seven weeks, Bloomberg wrote. The British pound sterling rose by 1.3% against the U.S. currency, and the euro - by 1.2%, the agency calculated.

The dollar exchange rate declined on Thursday amid fluctuations in oil. Brent after a jump of 11% above $119 per barrel almost lost the gained and ended the day with a growth of 1.2% - to $108.65 per barrel. In addition, the war between the U.S. and Israel against Iran reduces the attractiveness of interest rates in the U.S. relative to other major economies, Bloomberg writes.

"Changes in relative global interest rates, with markets pricing in sharp rate hikes by the European Central Bank and the Bank of England, have held back stronger dollar strength," said Jayati Bharadwaj, head of currency strategy at TD Securities, as quoted by Bloomberg.

In parallel with the fall of the dollar, the sell-off in the bond market intensified. For example, in the UK, the yield on two-year bonds jumped by 40 basis points - up to 4.49% after the Bank of England said it was ready to act to prevent the acceleration of inflation. The gap between two-year British and U.S. bonds on Thursday exceeded 61 basis points, the highest since 2011, Bloomberg writes. In Europe, bond yields also rose after the ECB meeting. Higher bond yields often lead to stronger interest rates as they make it more attractive to put cash in the relevant currency, the agency said.

"Central banks are beginning to react to the prospect of higher inflation by adjusting their forecasts and preferences, abandoning interest rate cuts in favor of increases," Bloomberg quoted Macquarie Group currency strategist Thierry Wiseman as commenting. Traders are betting on more than two rate hikes by the ECB and the Bank of England before the end of the year, the agency added.

Relative to the start of the war between the U.S. and Israel against Iran at the end of February, the dollar remains in the plus by about 1.5%, helped by a jump in the price of U.S. WTI crude oil by almost 40%, writes Bloomberg. The dollar is considered a "safe haven" closely linked to oil prices because the U.S. is the world's largest producer of the commodity and because of the dollar's role as the currency of global trade.

On March 19, following a similar decision by the U.S. Federal Reserve System, interest rates were kept by the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank.

This article was AI-translated and verified by a human editor