Fed tightens dollar expected in highest week since June

Texas News Today

FILE PHOTO: US dollar bills are displayed on the light table of the Bureau of Engraving and Printing in Washington on November 14, 2014. Reuters / Gary Cameron / FILE PHOTO / FILE PHOTO

October 1, 2021

by Ritwik Carvalho

LONDON (Reuters) – The dollar opened closer to this year’s high in the last quarter of 2021, as investors expected the Federal Reserve Board to raise US interest rates faster than its major peers. Led for the best week since June.

Concerns about COVID-19, China’s growth volatility and cautious market sentiment due to Washington’s standoff ahead of the US government’s deadline to raise the borrowing limit have also been seen as a safe haven asset for the dollar. I supported it.

Refinitiv’s dollar index reading was 94.313, up 1.1% so far this week, its biggest weekly increase since the end of June.

Dollar index set for best week since June https://fingfx.thomsonreuters.com/gfx/mkt/xmpjokdlxvr/DXY.png

Jane Foley, Head of Forex Strategy at Rabobank, said:

“This is positive for the US dollar in two ways. First, the US dollar looks better in terms of simple interest rate differentials. Second, US interest rate hikes and a stronger US dollar are EMs. This will put pressure on growth prospects. . ”

Foley said emerging market growth prospects are already worrying China’s slowdown and energy crisis.

“As a result, the US Dollar will benefit from low-risk cravings and exit the high-risk EM market.”

The euro was stable at $1.1582 on Friday, but fell nearly 1.3% during the week, hitting its lowest level since July 2020 through key support around $1.16.

The yen bounced off its 19-month low overnight, but fell 0.6% in a week, and a rise in US Treasury yields in two weeks doubled the damage pulled by dollar inflows from Japan. Last time it was trading at 111.21 per dollar.

Benchmark 10-year Treasury yield rises for sixth straight week, with real 10-year yield discounting inflationGrowing much faster than its European counterpart.

“As long as the market is confident that the US will begin tightening monetary policy within a reasonable amount of time, the dollar should continue to be well supported,” said Kitjack, a strategist at Société Generale.

“While the European Central Bank keeps interest rates below zero, the Fed’s rate hike is expected to keep the euro/dollar with a center of gravity of around $1.12 to $1.16 since 2014,” he said. Rice field.

Commodity currencies jumped on Thursday after Bloomberg reports that China had ordered energy companies to secure winter supplies, but were under pressure again on Friday.

Beijing is struggling to supply more coal to utilities to restore supply amid a power crisis where markets are volatile due to the potential impact on economic growth.

The Australian dollar fell 0.3% to $0.7203 and fell 3.6% in the third quarter as the price of iron ore, Australia’s top export, fell. This is the worst performance of any G10 currency. The New Zealand dollar fell 0.2% to $0.6882.

The central banks of the two countries met next week and the Reserve Bank of New Zealand saw rates hike, but the Reserve Bank of Australia expects to keep interest rates on hold until 2024.

Sterling was also at its worst in more than a month, squeezed by worries that the central bank would sound like a hawk despite sluggish performance in the previous quarter, down 2.5% and growing supply chain problems. Looks like it records the week. [GBP/]

Sterling fell 0.2% to $1.3452, slightly above its nine-month low.

Still, some analysts believe that the dollar may lose momentum. Mo Sion Sim, an analyst at the Bank of Singapore, said the growth rate could improve by the end of the year due to the decline in COVID-19 cases around the world.

Hong Kong and Chinese markets closed on Friday. Traders await US consumer and core consumption deflator data later that day, watching the progress of the debate over US debt caps nervously.

The deadline for approving additional Treasury lending is mid-October.

(Reporting by Rithvik Carvalho, additional reporting by Tom Westbrook in Singapore and Anushka Trivedi in Bangalore, edited by Nick McPhee)

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