US dollar hits 1-year high as Fed tightening in focus

London

THE US dollar hit a fresh one-year high against a basket of peers on Thursday on the growing view that the Federal Reserve will taper its monetary stimulus from November, while a bounce in iron ore prices boosted the commodity-linked Australian dollar.

The safe-haven greenback has made sharp gains over the last two sessions on concern that the Fed could begin withdrawing its economic support as global growth slows and inflation is high.

Spikes in bond yields have added to the currency's strength. The rise comes despite a political standoff in Washington over the US debt ceiling that threatens to shut down much of the government.

The dollar index - which measures the currency against a basket of six rivals - hit 94.504 by midday in London, its highest since Sept 28 last year, exceeding Sept 29's high of 94.435. Yields on the benchmark 10-year Treasury note stood at 1.5289 per cent, holding near a mid-June high reached on Sept 28 at 1.5670 per cent.

The dollar bought 112.06 yen, exceeding its February 2020 high hit on Sept 29. It was on track for its worst monthly performance since March.

The euro dipped 0.24 per cent to US$1.15705, holding near Sept 29's 14-month low of US$1.15895.

Speaking at a European Central Bank (ECB) forum on Sept 29, Fed chair Jerome Powell, ECB president Christine Lagarde and Bank of England governor Andrew Bailey said they were monitoring inflation after a surge in energy prices and production bottlenecks.

The spread on the 3-month euro-dollar cross currency basis swap tightened slightly to -21.25 basis points, after hitting their widest since December 2020 on Sept 29. The risk-sensitive Australian dollar firmed 0.5 per cent to US$0.7206, after plummeting 0.9 per cent overnight, as iron ore prices rallied ahead of the Golden Week holiday in Australia's top trading destination, China.

A rebound in monthly Chinese services data also "looks to have gone some way to allaying fears that the evident slowdown in China growth of late is accelerating to the downside", buoying the Aussie, said Ray Attrill, National Australia Bank's head of FX strategy.

Sterling edged up 0.1 per cent to US$1.34357 but remained near the nine-month low of US$1.3412 reached overnight on concerns about soaring natural gas prices and almost a week of petrol shortages in Britain. REUTERS