Fed minutes, virus fears lift US dollar to 9-month high

Amsterdam

THE US dollar rose to a nine-month high on Thursday as worries about resurging coronavirus infections and Federal Reserve meeting minutes showing policymakers weighing reducing pandemic-era stimulus this year hit global stocks and commodity-linked currencies.

The dollar index, which measures its performance against six currencies, extended gains in early London trading to rise 0.3 per cent to 93.434 to its highest since Nov 5, 2020. It was last up 0.3 per cent by 1024 GMT to 93.368.

The minutes of the Fed's July meeting showed officials largely expect to reduce their monthly bond buying later this year, but consensus on other key issues appeared elusive, including the timing of the start of the taper and whether inflation, joblessness or the coronavirus pose a bigger risk to economic recovery.

The minutes, along with sustained worries about the spread of the coronavirus, pushed Wall Street's main stock index down more than 1 per cent and drove several currencies to multi-month lows against the safe-haven dollar. European markets stumbled at open and US stock futures were pointing to a lower open while safe-haven bonds rallied.

The euro fell as low as US$1.16655 for the first time since Nov 4 and was last down 0.2 per cent at US$1.1694, while the sterling fell 0.5 per cent to US$1.36660, the lowest since July.

The reduction in debt purchases is also widely considered positive for the US dollar as it is expected to raise government bond yields, making it more attractive for investors to hold dollar-denominated assets.

With pandemic fears in focus, commodity-exposed currencies fell sharply on Thursday. The Norwegian crown extended its fall against the euro even as the country's central bank kept interest rates on hold and reiterated plans to hike them in September.

It fell more than 1 per cent to the lowest since July against the euro at 10.5405 crowns and dropped similarly against the US dollar. Weakness in oil prices, which hit their lowest since May on Thursday, hurt currencies, such as Norway's that are highly exposed to the sector.

The Australian and New Zealand dollars fell more than 1 per cent each to their lowest since November 2020 at US$0.71445 and US$0.68100 respectively. The kiwi extended its losses on Aug 18, when New Zealand entered a new lockdown, delaying its central bank from becoming the first in the G-10 to raise rates during the pandemic. REUTERS