LONDON, Sept. 30 (Reuters) – The dollar hit a new one-year high on Thursday against a basket of peers on the growing prospect that the Federal Reserve will cut monetary stimulus from November, while a rebound in Iron ore price boosted the commodity-linked to the Australian dollar.
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 – which measures the currency against a basket of six rivals – hit 94.504 at noon in London, its highest since September 28 last year, surpassing Wednesday’s high of 94.435.
Yields on the benchmark 10-year Treasury bond stood at 1.5289%, remaining near 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, surpassing its high reached Wednesday in February 2020. It was on track for its worst monthly performance since March.
The euro plunged 0.24% to $ 1.15705, holding near Wednesday’s 14-month low of $ 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. Read more
The spread on the 3-month euro-dollar currency swap narrowed slightly to -21.25 basis points, after reaching its widest since December 2020 on Wednesday. Read more
“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 strengthened 0.5% to $ 0.7206, after falling 0.9% overnight, as iron ore prices rallied ahead of the Golden Holiday Week in the main commercial destination of Australia, China.
A rebound in monthly Chinese services data “also appears to have helped allay fears that the obvious slowdown in Chinese growth of late is accelerating to the downside,” supporting the aussie, said Ray Attrill, head of NAB’s foreign exchange strategy.
The British pound edged up 0.1% to $ 1.34357 but remained close to the nine-month low of $ 1.3412 reached overnight amid concerns over soaring natural gas prices and near from a week of gasoline shortage in Britain.
A slight improvement in overall risk sentiment after days of gloom was seen in cryptocurrency markets, as bitcoin rose 5% to $ 43,567 and ether rebounded 6.4% to 3 $ 034.09.
Both coins are down 20% to 27% from their September peaks.
Reporting by Ritvik Carvalho; Additional reporting by Kevin Buckland in Tokyo, edited by William Maclean and Hugh Lawson
Our standards: Thomson Reuters Trust Principles.