Dollar buoyed by US yields ahead of ECB decision

London

THE US dollar rose to its highest in a week against peers on Wednesday, buoyed by higher Treasury yields and a weaker euro a day ahead of a European Central Bank (ECB) policy decision.

The dollar index, which measures the currency against six rivals, traded 0.2 per cent higher at 92.673 after earlier touching 92.732, a level not hit since Sept 1.

The euro traded 0.2 per cent lower at US$1.1819 after hitting US$1.1812, its lowest since Sept 1. Helped by higher US yields, the greenback also hit a 31/2 week high of 110.45 yen before retreating to 110.20 yen.

The benchmark 10-year Treasury note rose as high as 1.385 per cent on Sept 7, its highest since mid-July and a climb of almost 6 basis points from Sept 3's close. Sept 6 was a US holiday.

The dollar index tumbled to its lowest since early August at the end of last week, when a surprisingly soft US payrolls report prompted speculation that the Federal Reserve will forgo announcing a taper of its stimulus at this month's policy meeting.

At the same time, strong wage growth warned of the potential for inflationary pressures to grow. Investors will look to a speech by New York Fed president John Williams later on Wednesday for any hints on whether the labour market is still on the Fed's stated path of "substantial further progress" needed for a taper.

St Louis Fed president James Bullard told the Financial Times that the central bank should go forward with a plan to start trimming stimulus this year despite the jobs slowdown last month.

The ECB, which meets on Thursday, has kept policy ultra-easy since the start of the coronavirus pandemic, and it promised an even longer period of accommodation when it unveiled a new strategy in July. But inflationary pressure have built quicker over the summer months than many predicted.

Analysts polled by Reuters see Pandemic Emergency Purchase Programme purchases falling possibly as low as 60 billion euros (S$95.4 billion) a month from the current 80 billion, before a further fall early next year and the scheme's end in March.

Elsewhere, the Reserve Bank of Australia's decision on Sept 7 to forge ahead with a taper of bond purchases while adding the dovish concession of extending the programme to February, helped undermine the Aussie dollar.

It slipped 0.3 per cent to US$0.7366 on Wednesday, extending the previous session's 0.7 per cent slide. REUTERS