FOREX-Dollar Hits Year High As Fed Tightens, Iron Ore Prices Boost Aussie
By Ritvik Carvalho
LONDON, September 30 (Reuters) – The dollar hit a new one-year high against a peer basket on Thursday on the growing prospect that the Federal Reserve will scale back its monetary stimulus from November, while a rebound in iron ore prices boosted the Australian dollar tied to commodities.
The safe haven greenback has made clear gains over the past two sessions amid fears the Fed may begin to withdraw economic support as global growth slows and inflation is high. Spikes in bond yields added to the currency’s strength.
The hike comes despite a political stalemate in Washington over the US debt ceiling that threatens to shut down much of the government.
The dollar index = USD – which measures the currency against a basket of six rivals – hit 94.504 by noon in London, its highest since September 28 last year, surpassing Wednesday’s high of 94.435.
10-year Treasury benchmark returns US10YT = RR stood at 1.5289%, holding close to a mid-June high reached on Tuesday at 1.5670%.
“The movement (of the dollar index) was widespread and was not accompanied that day by particularly large increases in US yields or significant downward corrections in equities,” ING said in a note to clients. “It appears that this decision may have been motivated by the end-of-quarter corporate and institutional flows.”
The dollar bought 112.06 yen JPY = EBS, surpassing its February 2020 record on Wednesday. He was on track for his worst monthly performance since March.
The euro EUR = EBS dipped 0.24% to $ 1.15705, holding near Wednesday’s 14-month low at $ 1.15895.
“We continue to see the downside risk of the (euro) spot in the middle of this new low of the year,” said Kristoffer Kjær Lomholt, chief analyst at Danske Bank.
“A cyclical slowdown, higher real rates in 0-5 years, as a means to weigh on global inflation, central bank divergence and valuations are generally all inputs that suggest a weaker EUR / USD.”
Speaking at a European Central Bank forum on Wednesday, Fed Chairman Jerome Powell, ECB President Christine Lagarde and Bank of England Governor Andrew Bailey said they were watching inflation after soaring energy prices and production bottlenecks.
The spread on the 3-month euro-dollar currency swap narrowed slightly to -21.25 basis points, after hitting its widest since December 2020 on Wednesday. EURCBS3M = ICAP
“The sudden and brutal dollar bidding in the 3-month EURUSD currency market indicates that foreign banks (not foreign banks in the United States) operating in the dollar market with domestic funds are running out of dollars and are scrambling to finance themselves at the end of the quarter, “said Sébastien Galy, senior macro strategist at Nordea Asset Management.
“This is a sure sign of excessive leverage on foreign financial firms in the US dollar market (local subsidiaries are independently regulated by the US). “
The risk-sensitive Australian dollar AUD = D3 firmed 0.5% to $ 0.7206, after falling 0.9% overnight, as iron ore prices rebounded ahead of the Golden Week holiday in the top destination trade from Australia, China.
A rebound in monthly Chinese services data “also appears to have helped allay fears that the obvious slowdown in Chinese growth of recent times is accelerating to the downside,” supporting the aussie, said Ray Attrill, head of NAB’s foreign exchange strategy.
Sterling GBP = D3 edged up 0.1% to $ 1.34357 but remained near the nine-month low of $ 1.3412 hit overnight amid concerns about soaring natural gas prices and nearly a Britain’s gasoline shortage week.
A slight improvement in overall risk sentiment after gloomy days has been seen in cryptocurrency markets, such as bitcoin BTC = BTSP rose 5% to $ 43,567 and the ether ETH = BTSP rebounded 6.4% to $ 3,034.09.
Both coins are down 20% to 27% from their September peaks.
Global exchange rates https://tmsnrt.rs/2RBWI5E
(Reporting by Ritvik Carvalho; additional reporting by Kevin Buckland in Tokyo, editing by William Maclean and Hugh Lawson)
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