Dollar Near 1-Year High as Fed Tightening

Daily FX Signals – The safe-haven dollar has made sharp gains over the last two sessions on concern the Fed could withdraw economic support as global growth slows and high inflation is high. Spiking bond yields added to the currency’s firmness.

Its rise is despite an impasse in Washington over the U.S. debt ceiling that threatens to plunge the government into a shutdown.

Dollar Near 1-Year High as Fed Tightening

The dollar index – which measures the currency against a basket of six rivals – stood at 94.327, little changed from Wednesday, when it hit 94.435 for the first time since late September last year. Dollar Edges Higher Fed in Focus

Yields on the benchmark 10-year Treasury note stood at 1.5341%, holding near a mid-June high reached Tuesday at 1.5670%.

“A combination of higher U.S. yields, impending Fed tapering and skittish markets around the debt ceiling have fuelled this move (in the dollar),” Westpac analysts wrote in a client note.

The issue of whether to raise or suspend the debt ceiling would probably extend to mid-October, beyond which, the dollar will likely be supported by money markets pricing in rate hikes, they added.

The dollar bought 111.97 yen, little changed from Wednesday, when it reached 112.05 for the first time since February 2020. It was on track for its worst monthly performance since March. Dollar Edges Lower amid Fed Meeting

The euro was mostly flat at $1.15995, holding near Wednesday’s 14-month low of $1.15895

Speaking at a European Central Bank forum on Wednesday, 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 risk-sensitive Australian dollar firmed 0.5% to $0.7206, after plummeting 0.9% overnight, as iron ore prices rallied ahead of the Golden Week holiday in Australia’s top trading destination China.

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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, NAB’s head of FX strategy.

Sterling edged up 0.1% to $1.34357 but remained near the nine-month low of $1.3412 reached overnight on concerns about soaring natural gas prices and almost a week of petrol shortages in Britain.
Dollar Weakens Ahead of Fed Meeting

Both coins are down between 20%-27% from their September peaks.

Dollar Near 1-Year High as Fed Tightening

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