Rate Bets Rule Currency Markets as Dollar Shines; Euro, Aussie Sag
Rate Bets Rule Currency Markets as Dollar Shines; Euro, Aussie Sag
Zeno Markets 8
TOKYO (Reuters) – The U.S. dollar hit a fresh high since March 2017 against the yen and traded close to a 16-month peak versus a basket of major peers on Wednesday, as a run of strong economic data boosted bets for earlier Federal Reserve interest-rate hikes.
Australia’s dollar weakened after wage data failed to strengthen the case for tighter monetary policy.
The greenback rose as high as 114.975 yen before last changing hands at 114.755.
The dollar index – which measures the currency against six rivals including the yen – traded at 95.871, not far from the overnight high of 95.978, a level not seen since July of last year.
U.S. retail sales rose more than expected in October, a report showed Tuesday, building on momentum from last week when data showed consumer prices surging at the highest rate since 1990.
St. Louis Fed president James Bullard said on Tuesday that the central bank should “tack in a more hawkish direction” over its next couple of meetings to prepare in case inflation does not begin to ease.
Money markets are currently pricing in a high probability of a Fed rate increase in June, followed by another in November.
“The U.S. economy looks to have shaken off the Delta soft patch and is regaining forward momentum, albeit with heavy ongoing supply chain issues and reopening bottleneck,” Westpac strategists wrote in a client note, recommending buying the dollar index on any dips into the low 95 level.
“Hawkish comments from Bullard – voter next year – will leave markets comfortable pricing in Fed hikes (in) 2022, a stark contrast with Europe where renewed virus suppression measures are being implemented.”
The euro languished near a 16-month low to the dollar as Europe suffered from worries about growth amid a renewed surge in COVID-19 cases.
Germany’s parliament is due to vote on Thursday on stricter measures to deal with the outbreak, while Austria imposed a lockdown on unvaccinated people at the start of the week. France, the Netherlands and many countries in Eastern Europe are also struggling to contain infections.
European Central Bank President Christine Lagarde speaks later on Wednesday, after saying on Monday that tightening monetary policy now to rein in inflation could choke off the euro zone’s recovery.
ECB board member Isabel Schnabel also speaks at a separate event.
One euro last bought $1.13245, mostly flat from Tuesday, when it dipped as low as $1.1309 for the first time since July 2020.
In contrast, sterling was firm after the release on Tuesday of data that showed British employers hired more people in October after the government’s job-protecting furlough scheme ended.
