Greenback steadies near 16-month high; kiwi weakens

London

THE US dollar index held near 16-month highs on Tuesday (Nov 23) after Federal Reserve Chair Jerome Powell was picked for a second term, reinforcing market expectations that US interest rates will rise in 2022.

Currency markets have been mostly driven in recent months by market perceptions of the different paces at which global central banks reduce pandemic-era stimulus and raise rates.

"Markets are taking every US dollar strength story they can get in this environment, which is visible in the moves after Powell's widely expected reappointment," said Ima Sammani, FX market analyst at Monex Europe.

Sammani said the dollar strength was also due to rising front end US yields, which was likely caused by commentary from Federal Reserve policymakers. They include Atlanta Federal Reserve President Raphael Bostic, who said on Nov 22 that speeding up the tapering of asset purchases could give the Fed more room for rate hikes in 2022.

Commerzbank's head of FX and commodity research, Ulrich Leuchtmann, said that the decision to retain Powell was beneficial for the dollar because it showed President Joe Biden respecting the Federal Reserve's independence from government.

At 1135 GMT on Tuesday (Nov 23), the dollar index was at 96.489, little changed on the day and slightly below the 16-month high of 96.603 it reached during Asian trading hours.

Versus Japan's yen, the dollar rose to its highest in 4-and-a-half years, as investors expected US interest rates to diverge from those in Japan.

The Japanese currency is sensitive to moves in US Treasury notes, and 2-year US Treasury yields rose 8.5 basis points on Nov 22 to their highest since early March 2020. The dollar-yen move had eased by 1135 GMT, with the pair flat at 114.865, compared to the peak of 115.160 reached earlier in the session.

The euro was up 0.1 per cent against the dollar at US$1.12455, recovering slightly after hitting a 16-month low versus the dollar.

Turkey's lira slid to a new record low of 12 versus the dollar. This was its 11th record low in as many days, after President Tayyip Erdogan defended recent rate cuts and vowed to win an "economic war of independence".

The Australian dollar was down 0.1 per cent at US$0.7218 while the New Zealand dollar was down 0.5 per cent at US$0.6923.

In cryptocurrencies, Bitcoin was trading at around US$56,300. Earlier this month it had hit a new all-time high of US$69,000. REUTERS