Dollar up as energy price surge drives inflation worries

London

THE US dollar rose on Wednesday amid jitters that surging energy prices could spur inflation and interest rate hikes, and as traders awaited US jobs data for clues on the timing of Federal Reserve policy tightening.

The Reserve Bank of New Zealand lifted its official cash rate for the first time in seven years, but its resolutely hawkish tone only seemed to add to expectations that the Fed would follow suit and the kiwi dipped as US yields rose. The kiwi was last 1 per cent weaker at US$0.6889 and the Australian dollar fell 0.6 per cent to US$0.7243.

The euro was pinned below US$1.16 and last bought US$1.1567, scarcely higher than the 14-month low of US$1.1563 it struck last week.

The yen fell to a one-week low of 111.79 per dollar in tandem with a rise in Treasury yields, which can draw investment flows from Japan. It was within range of the 18-month trough of 112.08 that it visited on Sept 30. The greenback has won support as investors brace for the Fed to begin tapering asset purchases this year and lay the ground for an exit from pandemic-era interest rate settings well before central banks in Europe and Japan.

Fed funds futures markets are priced for rate hikes to begin around November 2022, but anticipate rates topping out at just over 1 per cent through most of 2025 even though Fed members project rates reaching 1.75 per cent in 2024.

Longer-dated US yields rose on Wednesday and the US dollar index was up 0.4 per cent at 94.354.

US non-farm payrolls data due on Friday is seen as crucial to informing the Fed's tone and timing, especially should the figures wildly impress or disappoint. Private payroll figures, a sometimes unreliable guide, are due around 1215 GMT.

A large miss on market expectations for around 428,000 jobs to have been added in September could dampen expectations for Friday's broader figure, which is forecast at 473,000.

The Canadian dollar eased from a one-month peak and the Norwegian crown pulled back from a three-month top. Another big mover among commodity currencies was Norway's crown, which fell over 1 per cent to 8.6438 per dollar.

Sterling has recovered some of last week's sharp sell-off against the dollar, but lost momentum through the Asian session and it fell 0.4 per cent to US$1.3570, hovering just below Oct 5's three-week peak on the euro. REUTERS