US dollar hits 4-week peak, sterling lower after BOE hike
The US dollar touched a four-week peak against major peers on Thursday (Aug 3) after upbeat labour market data a day earlier, while sterling remained lower after the Bank of England downshifted to a smaller 25-basis-point hike.
Data out on Wednesday showed US private payrolls rose more than expected in July, while plans by the US Treasury to increase the size of government bond auctions in the third quarter pushed longer-dated US Treasury yields higher and boosted the US dollar.
“In a world where the US continues to perform and avoids a hard landing while the rest of the world is struggling, it’s an environment which is going to keep the US dollar elevated,” Barclays FX strategist Lefteris Farmakis said.
The US dollar index, which measures the currency against six major peers, rose as high as 102.84, its highest level in four weeks. It was last little changed at 102.60, after Wednesday’s 0.5 per cent gain.
The closely watched US non-farm payrolls report is due on Friday.
A fresh wave of risk aversion after rating agency Fitch downgraded the US government’s top credit rating could have resulted in some safe-haven buying, others said, which paradoxically also lent support to the US dollar.
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Sterling meanwhile fell as much as 0.7 per cent to US$1.2620, its lowest level since Jun 30 after the BOE opted to raise its key bank rate by 25 basis points, following an unexpected half-point move in June.
“The relative disparity in the trajectory of future monetary policy, against a backdrop of better-than-expected economic growth data, has catalysed a rally in the UK pound this year,” said John Leiper, chief investment officer at Titan Asset Management.
“But momentum has dwindled recently, following the latest inflation number... and signs today that the bank is becoming a little more relaxed around the direction of travel.”
The pound was last down 0.3 per cent at US$1.2676.
The safe-haven yen was last nearly 0.3 per cent higher at 142.87 per US dollar, benefiting from risk aversion as global equities extended their recent drop. Earlier, the currency fell to a four-week low of 143.89 per US dollar.
The Japanese currency had come under pressure this week even as the Bank of Japan on Friday loosened its grip on interest rates. Policymakers have also been quick to push back against speculation that the move was a prelude to an imminent exit of the central bank’s ultra-easy policy.
The euro was up 0.1 per cent at US$1.0946, while the Aussie fell to a two-month low of US$0.6514.
The New Zealand dollar similarly earlier slid to its lowest since end-June at US$0.6063, having tumbled more than 1 per cent on Wednesday.
“Risk assets have been more impacted by the Fitch downgrade,” Tina Teng, market analyst at CMC Markets, said. “The US dollar actually strengthened against most other currencies (and) there were risk-aversion trades across all the asset classes.”
Elsewhere in Asia, China’s offshore yuan strengthened after data on Thursday showed that the country’s services activity expanded at a slightly faster pace in July, though investors continue to be on the lookout for further support measures from Beijing following last week’s Politburo meeting. REUTERS
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