Dollar Holds Two-Month High as Rate-Hike Bets Lift US Yields
US Dollar Holds Near Two-Month High as Strong Data and Rate-Hike Bets Boost Currency
The US dollar held near a two-month high on Thursday. Strong manufacturing data renewed concerns about inflation and raised expectations for further interest-rate increases.
Higher US Treasury yields also supported the dollar. A weak auction of five-year Treasury notes pushed bond yields higher across the market.
The dollar’s strength pushed the euro down to $1.1378, its lowest level in two months. Sterling also remained near a three-month low at $1.3231.
The US Dollar Index stood near a two-month high at 101.1. The index tracks the dollar against a basket of major currencies.
A stronger-than-expected purchasing managers’ report raised fresh concerns about inflation. The weak Treasury auction then triggered another round of bond selling.
The five-year US Treasury yield moved above 5% for the first time since 2007. Higher yields have increased the dollar’s appeal to investors.
Federal Reserve Governor Michael Barr said rising inflation risks and strong economic growth could require further rate increases. Markets interpreted his comments as guidance on the central bank’s policy outlook.
“Given the relative strength of US growth and increasingly aggressive Fed rate-hike pricing, the US dollar continues to stand firm in its attraction to own,” said Chris Weston, head of research at Pepperstone.
Petrol, HSD Prices Cut as New Rates Take Effect
Weston said markets are now focusing on signs that the US economy could be overheating. He added that policymakers may need to tighten monetary policy if inflation remains above expectations.
Oil Prices Add to Inflation Concerns
Rising oil prices have also increased inflation concerns. Oil prices jumped nearly 4% on Wednesday after Iran’s president said the country would not surrender.
Markets also continued to assess the impact of US President Donald Trump’s diesel export ban.
Traders now see nearly a 70% chance of another US rate increase in October, according to the CME Group FedWatch Tool. The probability stood at around 50% a week earlier.
Yen Nears Three-Week Low
The Japanese yen traded at 157.9 per dollar, close to a three-week low. Traders remained alert for possible intervention by Japanese authorities.
Markets viewed the Bank of Japan’s recent rate increase as less aggressive than expected. Japan raised its policy rate to a 31-year high last week.
New data on Thursday showed slower growth in Japan’s manufacturing sector. Output and new orders both weakened during September.
The Australian dollar fell 0.07% to $0.7035 ahead of the latest jobs data. The New Zealand dollar remained broadly unchanged at $0.5676.
Meanwhile, the offshore yuan traded near 6.7119 per dollar. Investors are watching Chinese President Xi Jinping’s first visit to the United States in three years.
The meeting could influence relations between Washington and Beijing. Trade, technology, Taiwan and Iran remain among the key issues affecting bilateral ties.
