U.S. Dollar Moves To New Highs Amid Flight To Safety

(8/22/22 - Vladimir Zernov)

EUR/USD is testing multi-decade lows and is trying to gain additional downside momentum.

Key Insights

• U.S. dollar starts the week on a strong note as traders move out of riskier assets. 
• EUR/USD declined to 0.9930 as traders rushed to sell the European currency amid severe energy crisis in the EU. 
• Commodity-related currencies are moving lower as most commodities suffer a pullback on recession worries. 

U.S. Dollar Rallies To New Highs

The U.S. dollar started the week with strong rally as traders rushed to the safety of the American currency. The global market sell-off highlighted recession worries, providing additional support to the U.S. dollar.

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, is currently trying to settle above the 109 level. In case this attempt is successful, it will move towards the yearly highs near 109.30.

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The U.S. dollar will remain volatile ahead of the Jackson Hole Economic Symposium, which begins on August 25. Fed Chair Jerome Powell is scheduled to speak on August 26.

The FedWatch Tool indicates that there is a 56.5% probability of a 75 bps rate hike at the next Fed meeting. The rising probability of an aggressive rate hike has pushed Treasury yields to multi-week highs. In case yields continue to rise, the U.S. dollar will get more support.