Dollar resumes upward march on higher yields; yen falls

London

THE US dollar gained broadly on Monday (Oct 18), rebounding towards a 1-year high hit last week as slowing economic growth in China and firmer US Treasury yields boosted the appeal of the greenback with the Japanese yen among the major losers.

Three data points over the weekend, namely strong inflation data in New Zealand, hawkish comments from the Bank of England (BOE) and slowing growth in China has reaffirmed the broad theme of rising inflation and slowing growth in global markets.

Investors have chosen to trade that theme by buying the greenback against its rivals while simultaneously dumping currencies of commodity importers like Japan.

Latest weekly positioning data in currency markets showed that hedge funds have ramped up their net bearish bets on the Japanese yen to their biggest levels since May 2019 while increasing their bullish bets on the greenback.

US Treasury yields firmed on Monday, extending a trend in recent weeks with 5-year bond yields rising to their highest levels since February 2020 as investors ramped up bets that the US Federal Reserve was preparing to raise interest rates as early as next year.

The inflation outlook has also prompted expectations of earlier tightening of global monetary policy, with Danske Bank expecting as much as 2 rate hikes from the Fed in the second half of next year.

The dollar index rose 0.1 per cent to 94.05, edging back towards last week's 1-year high of 94.563 which was the highest level since September 2020.

The yen was close to a new 3-year low, with the dollar last up 0.1 per cent at 114.36 yen, close to Oct 15's 114.47 level that was last hit in October 2018.

In New Zealand, where consumer prices zoomed higher at their fastest clip since 2010, analysts said that the central bank would need to stay the course on its hiking trajectory even as the lockdown of Auckland was extended.

The kiwi jumped almost 0.5 per cent to a 1-month high of US$0.7105 before easing back to trade down 0.2 per cent at US$0.7056 after a decade-high quarterly inflation reading.

Sterling slipped 0.1 per cent to US$1.3735 despite hawkish weekend remarks from BOE governor Andrew Bailey, who said policymakers "will have to act" as energy prices drive consumer prices higher. REUTERS