The Business Times

US dollar rises after case for US rate hikes strengthens

Published Mon, Oct 10, 2022 · 07:54 PM

THE US dollar edged higher on Monday (Oct 10) as investors set their sights on inflation data later in the week that is expected to show that price pressures remain strong. The sterling slipped for the fourth straight session even after the Bank of England (BOE) expanded its support for financial markets.

US data due on Thursday is forecast to show that headline inflation came in at a hot 8.1 per cent year-on-year rate in September, but down from 8.3 per cent in August.

Core inflation is expected to have risen to 6.5 per cent from 6.3 per cent previously.

Unemployment unexpectedly fell and the US economy added more jobs than predicted in September, data showed last week.

That pushed up bond yields as traders increased their bets that the Federal Reserve would hike interest rates by 75 basis points in November for the fourth meeting running.

Westpac strategist Sean Callow said the data and rising yields in response was a “robust combination for the dollar”.

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“It’s further evidence that the US economy is not cratering,” he said. “It just feeds into the notion that the Fed is going to spend the next three weeks saying the same thing about interest rates.”

The US dollar index was up 0.33 per cent at 113.18 on Monday, off lows around 110 last week and creeping back towards last month’s 20-year high of 114.78. The euro was down 0.4 per cent to US$0.9692.

In Britain, the BOE attempted to ease concerns about the end of its emergency bond-buying scheme.

UK markets went into a tailspin in late September after the government unveiled a plan to slash taxes and ramp up borrowing.

The pound tumbled and the BOE was forced to intervene to prop up bond markets.

The BOE said it was prepared to buy as much as £10 billion (S$15.8 billion) of gilts on Monday, double the previous limit. It also created a new scheme to help banks more easily access cash.

Sterling slipped for a fourth session running despite the BOE’s move. It was last down 0.42 per cent to US$1.1046, although it remained well above the Sep 26 record low of US$1.0327.

Geopolitical tensions and higher oil prices also caused renewed nervousness about growth, pushing investors back towards the dollar.

Russia pounded Kyiv and other Ukrainian cities with missiles in response to a blast that hit its only bridge to Crimea. Russia’s rouble fell to 63 per dollar for the first time since Jul 7.

The Aussie dollar fell to a 2½-year low of US$0.6829 as the greenback rose. The Reserve Bank of Australia last week raised interest rates by less than expected, adding to the pressure on the currency. Higher interest rates typically attract investors towards a country’s assets.

Japan’s yen was little changed after slipping towards levels that prompted authorities’ intervention to support it last month. The yen was last at 145.49 per dollar.

Chinese markets reopened after a week-long holiday. The yuan opened at 7.10 per dollar before slipping to 7.1487. REUTERS

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