Dollar at 2021 highs even as US govt shutdown looms

London

THE US dollar was flying high on Wednesday and hit a 2021 peak against rival currencies even though arguing in Washington over the US debt ceiling threatened to plunge the government into a shutdown.

The greenback - the world's reserve currency seen as a safe haven bet at times of market stress - has strengthened in recent days as investors instead focus on fears of a global slowdown, a rise in energy prices and higher US Treasury yields.

Traders are also concerned that the Federal Reserve will start to withdraw policy support just as global growth slows.

US Senate Republicans on Sept 28 blocked a bid by President Joe Biden's Democrats to head off a potentially crippling US credit default, with federal funding due to expire on Thursday and borrowing authority on around Oct 18.

The dollar index - which measures the US currency against a basket of rivals - rose for the fourth consecutive trading day on Wednesday, up 0.3 per cent to 93.990, its highest level since November 2020.

The dollar's gains were more muted though, as risk sentiment recovered somewhat across markets with European stocks retracing some losses and oil prices dipping after touching a near three-year high the previous day.

The euro was among the currencies to lose ground, falling 0.4 per cent to an 11-month low of US$1.16390.

The yen showed little reaction to the election of Fumio Kishida as leader of Japan's ruling Liberal Democratic Party and on course to become the country's next prime minister. The yen, which is sensitive to US yields as higher rates can draw flows from Japan, touched an 18-month low of 111.685 per dollar, before rebounding to 111.210.

Sterling, which slumped on Sept 28 amid worries over the economic impact of a shortage of petrol and a scramble for fuel, extended losses to its lowest since January at US$1.34735.

Currency traders are watching closely for clues as to when governments and central banks worldwide will reverse massive emergency support launched to fight the pandemic last year.

European Central Bank (ECB) president Christine Lagarde, Fed chair Jerome Powell, Bank of England governor Andrew Bailey and Bank of Japan governor Haruhiko Kuroda are panelists at an ECB forum in Sintra, Portugal, at 1545 GMT. REUTERS