Wednesday, October 20

Dollar heads for best week in months as Fed tightening eyed


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SINGAPORE — The dollar began the last

quarter of 2021 near its highest levels of the year, and was

headed for its best week since June as investors expected a

hawkish-sounding Federal Reserve to lift US interest rates

sooner than its major peers.

Cautious market sentiment due to COVID-19 concerns, wobbles

in China’s growth and a Washington gridlock ahead of a looming

deadline to lift the US government’s borrowing limit also lent

support to the dollar which is seen as a safe-haven asset.

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The dollar index stood at 94.287, having gained 1.1%

so far this week, the largest weekly rise since late June.

The euro was steady on Friday at $1.1578, but has

fallen about 1.3% during the week, and through major support

around $1.16, to touch its lowest levels since July 2020.

The yen bounced from a 19-month low overnight but

has lost 0.6% for the week and twice as much in a fortnight as a

rise in US Treasury yields has drawn flows from Japan into

dollars. It last traded at 111.21 per dollar.

Benchmark 10-year Treasury yields are up for a

sixth straight week and real 10-year yields,

discounted for inflation, are rising far more quickly than

counterparts in Europe.

“As long as markets remain confident that the US is going

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to start tightening monetary policy within a reasonable

timeframe, the dollar should remain well,” said Societe Generale

strategist Kit Juckes.

“The prospect of the European Central Bank keeping rates

below zero while the Fed hikes should keep euro/dollar in the

post-2014 range, with a center of gravity around $1.12-1.16,” he

said.

Commodity currencies made a bounce on the dollar on Thursday

following a Bloomberg report which said China had ordered energy

companies to secure supplies for the winter at all costs, but

were back under pressure on Friday.

Beijing is scrambling to deliver more coal to utilities to

restore supply amid a power crunch that has unsettled markets

due to the likely hit to economic growth.

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The Australian dollar fell 0.3% to $0.7203 and had

slumped 3.6% in the third quarter – the worst performance of any

G10 currency against the dollar – as prices for Australia’s top

export, iron ore, fell sharply. The New Zealand dollar

slipped 0.2% to $0.6882.

Central banks in both countries meet next week, with the

Reserve Bank of New Zealand seen hiking while the Reserve Bank

of Australia is expected to stick with its forecast to keep

rates where they are until 2024.

Sterling was also an underperformer last quarter, dropping

2.5%, and looks set to log its worst week in more than a month,

weighed down by worries about a hawkish sounding central bank in

spite of growing supply chain problems.

Sterling eased 0.2% to trade just above a 9-month

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low at $1.3452.

Still, some analysts think the dollar might soon lose some

momentum. A decline in global COVID-19 cases could see growth

rebound by year-end, said Bank of Singapore analyst Moh Siong

Sim.

Markets in Hong Kong and China are closed on Friday. Later

in the day, traders are awaiting US personal spending and core

consumption deflator data and nervously watching for any

progress on the debate over raising the US debt ceiling.

A deadline for authorizing extra Treasury borrowing looms in

mid-October.

================================================== ======

Currency bid prices at 0624 GMT

Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.1580 $1.1578 +0.03% -5.21% +1.1583 +1.1564

Dollar/Yen 111.1350 111.3550 -0.11% +7.69% +111.4800 +111.1650

Euro/Yen

Dollar/Swiss 0.9314 0.9317 -0.02% +5.29% +0.9333 +0.9314

Sterling/Dollar 1.3449 1.3477 -0.22% -1.58% +1.3480 +1.3445

Dollar/Canadian 1.2728 1.2685 +0.34% -0.04% +1.2734 +1.2678

Aussie/Dollar 0.7198 0.7227 -0.39% -6.43% +0.7240 +0.7194

NZ 0.6880 0.6897 -0.23% -4.18% +0.6904 +0.6881

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook in Singapore and Anushka Trivedi in

Bengaluru; Editing by Ana Nicolaci da Costa)

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