Dollar stands tall as traders brace for tapering

The dollar traded near its highest levels of the year on Wednesday, after driving higher with U.S. yields and benefiting from investor nervousness about the Federal Reserve starting to withdraw policy support just as global growth headwinds gather.

The dollar rose broadly overnight to lift the dollar index to an 11-month high of 93.805. It was marginally below that level early in the Asia session at 92.728.

U.S. Treasury yields have surged — with benchmark 10-year rates up 25 basis points in five sessions to 1.5548% — as Fed tapering looms before the year’s end and as inflation starts to look stickier than first thought.

The Japanese yen, which is sensitive to U.S. yields as higher rates can draw flows from Japan, has fallen about 2% in five sessions and at 111.57 per dollar is not far from hitting its lowest level since February 2020.

The euro fell to a one-month low overnight and, last buying $1.1684, is also testing major support levels around its 2021 low of $1.1664 and its November 2020 low of $1.1602.

Along with the Fed’s hawkish tone, energy prices are surging and concerns are gathering about the growth outlook in China — now at risk both from a messy collapse at developer China Evergrande and rolling power outages that are hitting output.

“Compared to the unencumbered optimism at the start of the year, it is a twilight zone for markets as 2021 approaches its end,” Deutsche bank strategists said in note that upgraded forecasts on the dollar and recommended a bet against the euro.

“Persistently stagflationary dynamics – lower growth but a hawkish Fed — leave little room for a dollar downtrend,” they said.

Sterling copped a particular beating overnight as concern over the economic impact of a shortage of gas and a scramble for fuel pulled it 1.2% lower on the stronger dollar, its largest daily fall in more than a year.

The Australian and New Zealand dollars also suffered and the kiwi hit a one-month low. Central bank meetings loom next week in both countries and swaps pricing points to the Reserve Bank of New Zealand following Norges Bank and lifting rates.

“NZD/USD remains stuck around $0.7000, as the effect of the hawkish RBNZ is offset by increasing expectations of the Fed,” said Westpac analyst Imre Speizer.

The kiwi was last at $0.6947 and the Aussie at $0.7248.

Ahead on Wednesday, Japan’s ruling party votes for a new leader who will almost certainly become the country’s next prime minister.

European Central Bank (ECB) President Christine Lagarde, Fed Chair Jerome Powell, Bank of England Governor Andrew Bailey and Bank of Japan Governor Haruhiko Kuroda are panelists at an ECB forum.

Rising U.S. yields push dollar higher; yen falls to three-month low

The U.S. dollar rose to its highest in more than five weeks and the Japanese yen dropped versus both dollar and euro, as rising U.S. and European government bond yields made their currencies more attractive to Japanese buyers.

U.S. Treasury yields have surged since the end of last week, after the Federal Reserve said it will likely begin reducing its monthly bond purchases as soon as November and hinted that interest rate hikes may follow more.

The Japanese yen is the G10 currency most correlated with U.S. two-year and 10-year Treasury yields, MUFG currency analyst Lee Hardman said in a note to clients.

“Upward pressure on US yields should continue to provide a lift for USD/JPY in the near-term,” he said, although he also said that the yen is “deeply undervalued” which could limit the extent of the weakness.

At 0722 GMT, the U.S. dollar index was up 0.2% at 93.592, having earlier hit 93.616, its highest since August 20.

The euro was down 0.2% versus the dollar at $1.16775.

“Amidst the many cross-currents in FX markets right now – energy, Evergrande, US debt ceiling, Delta – one theme that seems to be gaining traction is that the market lies on the cusp of re-assessing the path for the Fed tightening cycle,” ING strategists wrote in a note to clients.

“A big move higher in the short-end is the key reason why we are bullish on the dollar, particularly from 2Q next year, but we will closely monitor and re-assess whether that move needs to come earlier – largely a function of timing the take-off in short-end rates.”

The yen – which is seen as a safe haven currency – was down around 0.3% against the dollar, with the pair changing hands at 111.355. Earlier in the session it hit 111.430, the yen’s weakest in almost three months.

ING strategists said the yen’s weakness was also due to Japan’s role as a large energy importer. Oil prices climbed for a sixth day on Tuesday and prices of liquefied natural gas (LNG) and coal also rose.

Minutes from the Bank of Japan’s July meeting showed that some central bank policymakers warned of the risk of a delay in the country’s economic recovery.

The Australian dollar, which is seen as a liquid proxy for risk appetite, was down 0.2% at $0.7267.

The British pound was down 0.2% at $1.36785. The currency jumped last week after a hawkish tone by the Bank of England, but analysts struck a cautious note on the currency as Britain struggled with supply chain chaos.

“The longer the supply bottlenecks persist, the more endangered the economic recovery will be and the less likely a significant tightening of monetary policy will become,” Commerzbank FX analyst Esther Reichelt said in a client note.

Currency traders are waiting for central bank speakers, including ECB Christine Lagarde at 1200 GMT and U.S. Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen, who will appear before U.S. lawmakers later in the session.

Market participants are also watching U.S. politics, after the Senate failed to advance a measure to suspend the federal debt ceiling and avoid a partial government shutdown.

China’s central bank said it would protect consumers exposed to the housing market on Monday and injected more cash into the banking system as the Shenzhen government began investigating the wealth management unit of ailing developer Evergrande.

Dollar slumps as risk appetite rebounds

The dollar fell across the board on Thursday as improved risk sentiment in global financial markets wiped out its gains in the previous session after the U.S. Federal Reserve flagged plans to dial back its stimulus this year.

Investors’ risk appetite improved after Beijing injected fresh cash into its financial system ahead of an $83.5 million bond coupon by embattled property giant Evergrande, at risk of becoming one of the world’s largest-ever corporate defaults.

Worries about Evergrande’s payment obligations and what systemic risks to China’s financial system the property giant’s difficulties pose have weighed on global financial risk sentiment in recent sessions.

“Commodity currencies are broadly higher while havens are weaker, leaving the USD trading generally lower after a firm close following the FOMC (Federal Open Market Committee),” Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

The U.S. Dollar Currency Index, which measures the greenback against a basket of six rivals, was 0.5% lower at 93.037. The index, which had risen 0.25% on Wednesday, was on pace for its biggest daily percentage drop in a month but remains close to the near 10-month high touched in late August.

The offshore Chinese yuan strengthened versus the greenback at 6.4599 per dollar.

The dollar found little support from data that showed the number of Americans filing new claims for jobless benefits unexpectedly rose last week amid a surge in California.

Thursday’s improved mood boosted risk-sensitive commodity currencies, with the Australian dollar rising 0.9% and the New Zealand dollar up 1.0%.

The improved risk-appetite was reflected in Wall Street’s major equity indexes, with the S&P 500 on track for a gain of more than 1% and its largest two-day percentage gain since late July.

On Wednesday, the Federal Reserve said it will likely begin reducing its monthly bond purchases as soon as November and signaled interest rate increases may follow more quickly than expected.

While positive for the dollar, the boost from the Fed’s announcement was undercut by hawkish messages from several central banks in Europe, and as Norway became the first developed nation to raise rates.

Norway’s crown jumped to a 3-1/2 month high versus the euro on Thursday after the central bank raised its benchmark interest rate and said more hikes will follow in the coming months.

Sterling extended its rise on Thursday after the Bank of England said two of its policymakers had voted for an early end to pandemic-era government bond buying and markets brought forward their expectations for an interest rate rise to March.

In emerging markets, the Turkish lira plummeted to a record low after a surprise interest rate cut of 100 basis points to 18% that came despite inflation hitting 19.25% last month

Meanwhile, bitcoin extended its recovery from a sharp fall earlier this week, rising 2.42% to a 3-day high of $44,642.78.

Dollar hits one-month high as traders eye Fed rates liftoff

The dollar hit its highest in a month on Thursday and pressed the euro towards major support levels, after the Federal Reserve set the stage for rate hikes next year — far sooner than its developed market peers are expected to move.

The U.S. central bank left policy settings unchanged overnight and, as expected, did not announce the beginning of asset purchase tapering. But the Federal Reserve said “a moderation in the pace of asset purchases may soon be warranted” and Fed Chair Jerome Powell said board members believed tapering could conclude around mid-2022, opening the way for rate hikes after that.

The dollar rose broadly after his comments, especially against the euro and yen. The U.S. yield curve flattened and Fed funds futures markets moved to price a 50% chance of a hike in October and to fully price a 25 basis point rate hike in December.

At a one-month low of $1.1684 in early Asia trade, the euro is close to its 2021 trough of $1.1664 and not far from major support at $1.1602, a break of which could open the way to falls as far as $1.14.

Liquidity was lightened by a holiday in Japan on Thursday.

“Powell didn’t give any specifics about the start of the taper, he said there was broad agreement in the end of taper, one which ‘concludes around the middle of next year,’” said John Briggs, strategist at NatWest Markets.

“This is in our view more important than when the taper starts, as it starts the clock on when the next hike may occur.”

The yen also lost ground after Powell’s news conference and ended up falling 0.5% for the session – its sharpest drop in more than three months — taking it to 109.87 per dollar, about the middle of a range it has kept since March.

The dollar index hit a one-month high of 93.526.

The Bank of Japan, which met on Wednesday, made no policy changes and is not seen lifting rates anytime soon while the European Central Bank is also lagging the Fed.

Fed members’ new projections have hikes starting in 2022.

The yen, a safe-haven asset, had also suffered a bit on Wednesday because developer China Evergrande offered the market some relief after its main unit said it agreed to settle a bond interest payment with some domestic creditors.

It still has to settle $83.5 million in interest on an offshore bond due on Thursday.

The Australian and New Zealand dollars gave up gains after Powell’s remarks and traded slightly lower in Asia, with the Aussie last down 0.1% at $0.7323, while the kiwi dipped below $0.70 to $0.6992.

The Bank of England meets on Thursday, with traders expecting it to keep rates steady but wary of any hawkish surprises.

Sterling is hovering just above big chart support at $1.3615.

Norges Bank, meanwhile, is widely expected to deliver the first hike among G10 central banks on Thursday. The Norwegian Crown was steady in Asia at 8.669 per dollar.

Gold prices flat as markets await Fed tapering timeline

Gold prices were flat on Tuesday as investors adopted a risk-averse stance amid caution ahead of U.S. Federal Reserve’s policy meeting where the central bank is expected to provide cues on when it will begin tapering its asset purchases.

Bullion is considered as a hedge against inflation and currency debasement likely resulting from the widespread stimulus. A hawkish move by the Fed would diminish gold’s appeal, while an eventual interest rate hike would also raise the opportunity cost of holding the non-interest bearing asset.

Prices had recovered on Monday from an over one-month low on safe-haven demand as China’s Evergrande debt woes fueled sharp sell-off in stocks worldwide.

U.S. gold futures were flat at $1,764.40.

Worries about the fallout from property developer Evergrande’s solvency issues spooked financial markets and lifted the dollar index, which hit a near one-month peak on Monday. A firmer dollar generally makes bullion more expensive for other currency holders.

Fed is likely to provide an outlook on how soon and how often they think the economy will need interest rates rises over the next three years when they release new forecasts at their policy meeting on Wednesday.

The volume of the European Central Bank’s bond purchases is becoming “less important” as the economic outlook improves and the money-printing scheme becomes a tool for guiding rate expectations, ECB board member Isabel Schnabel said on Monday.

Russia’s gold reserves stood at 73.8 million troy ounces as of the start of September, the central bank said on Monday.

Silver edged up 0.1% to $22.26 per ounce, having hit a more than nine-month low of $22.01 in the previous session.

Palladium climbed 0.6% to $1,896.30 after slumping to its lowest level since June 2020 on Monday.

Platinum rose 0.5% to $915.05, having touched a 10-month low on Monday.

Dollar holds near three-week high after U.S. data boost

The dollar held near three-week highs on Friday after better-than-expected retail sales numbers in the United States boosted bets on the strength of the U.S. economy and earlier monetary policy tightening.

The euro pulled itself into positive territory by the European mid-morning but at $1.1783 remained close to a three-week low.

U.S. retail sales unexpectedly increased in August, data showed on Thursday, rising 0.7% from the previous month despite expectations of a 0.8% fall. A business sentiment survey also showed a big improvement.

The figures revive expectations for an early tapering of its asset purchases by the Federal Reserve, which has its two-day policy meeting next week.

The more bullish reading of the U.S. economic outlook faces another test on Friday with the release of the University of Michigan’s consumer sentiment index.

The dollar index last stood at 92.818 down slightly on the session but near Thursday’s three-week high of 92.965.

Currency markets were generally quiet on Friday with traders reluctant to take on new positions ahead of a clutch of important central bank meetings next week including the Fed, the Bank of Japan and the Bank of England.

“Despite the ongoing China Evergrande saga plus views from many that equities are due a correction, risk sentiment remains surprisingly supported. Expect another quiet FX trading session before a busy week of central bank meetings,” ING analysts said.

The Swiss franc steadied after hitting a five-month low versus the dollar of 0.9280 francs.

The dollar rose 0.2% to 109.99 Japanese yen, having gained 0.34% on Thursday to rise off Wednesday’s six-week low of 109.11.

The yen has shown a limited reaction to the ruling Liberal Democratic Party’s leadership race, which formally kicks off on Friday ahead of a Sept. 29 vote. The LDP’s parliamentary dominance means the party’s new leader will become prime minister.

The Chinese yuan recovered slightly after Thursday’s 0.4% fall.

The offshore yuan traded at 6.4526 to the dollar, pressured by growing worries about China’s real estate sector as investors fear property giant China Evergrande could default on its coupon payment next week.

The Evergrande saga follows a series of regulatory clampdowns in China that has knocked investor confidence in the local stock market, as well as signs growth there is slowing.

“The continued uncertainty over news out of China, with anything from tech to property firms taking a hit, has yet to offer much of a blow to ongoing risk sentiment but must be closely watched for signs of contagion,” said Jeremy Thomson-Cook, chief economist at business payments firm Equals Money.

Still, on a trade-weighted basis, the yuan stood near its highest level in five years, both in the onshore and offshore market.

The British pound slipped 0.1% to $1.3784 as UK retail sales undershot expectations. However, with investors bringing forward forecasts for a Bank of England interest rate hike to mid-2022, sterling remains supported and is near one-month highs.

Dollar dips as soft U.S. inflation weighs; Fed in focus next week

The dollar slipped against major currencies on Wednesday after softer-than-expected U.S. inflation data released on Tuesday eased short-term expectations about tapering of asset purchases from the Federal Reserve.

The dollar index last stood at 92.546, down about 0.1% on the day from Tuesday, when it dropped following the inflation data but recovered on haven demand as stocks slid on Wall Street.

But the greenback trimmed losses after data showing import prices fell unexpectedly in August and a higher-than-expected reading for the New York Fed’s business survey.

These reports offset data showing U.S. manufacturing output slowed in August, rising 0.2% from a 1.6% increase the previous month.

“The reality is that there is no guidance other than the obvious: poor economic indicators mean the recovery from the pandemic has slowed down more than expected by Delta,” said Juan Perez, FX strategist and trader at Tempus Inc in Washington.

“The buck in the midst of all this will still have room for gains and spikes as doom and gloom play a role in diminished risk-appetite, but idiosyncratic improvements in the U.K., as we saw with CPI, and other regions could eventually start weakening the dollar more consistently,” he added.

Wednesday’s data showed Britain’s inflation rate hit its highest in almost a decade last month after a record jump that was largely fuelled by a rebound in restaurant prices.

The dollar index, a measure of the greenback’s value against six major currencies, has traded between 92.3 and 92.9 over the past week as several Fed officials suggested the U.S. central bank could reduce buying debt securities by the end of the year, even after a weaker-than-expected payrolls report earlier this month.

While elevated inflation has kept pressure on policymakers, data overnight showed the U.S. consumer price index, excluding the volatile food and energy components, edged up just 0.1% last month.

The Federal Open Market Committee’s (FOMC) two-day policy meeting next week should provide some clarity on the outlook for tapering and interest rates.

Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy. It also means the central bank will be buying fewer debt assets, in effect reducing the number of dollars in circulation and increasing the currency’s value.

In early afternoon trading, the euro was little changed against the dollar at $1.1808.

The dollar fell to a four-week low of 109.14 yen, and last changed hands at 109.43, down 0.2%.

Meanwhile, the Chinese yuan and Australian dollar slid after Chinese data showed factory and retail sales growth cooled more sharply than expected last month.

The yuan extended its decline to as far as 6.4433 yuan per dollar. The dollar was last down 0.2% at 6.4261 yuan.

The Aussie dollar sank as low as US$0.7301, its lowest in more than two weeks following China’s data, but recovered to trade up 0.1% US$0.7329.

Dollar holds tight range as investors await U.S. inflation data

The dollar was little changed against other major currencies on Tuesday as investors looked to U.S. inflation data later in the session for clues on the timing of policy tightening by the Federal Reserve.

The dollar index stood at 92.622, having retreated from a two-week high of 92.887 hit earlier on Monday while the euro changed hands at $1.18105, having bounced back from Monday’s low of $1.17705, its lowest since Aug. 27.

An immediate focus is on U.S. consumer price data due at 1230 GMT.

Economists expect core CPI, an index which strips out volatile energy and food prices, to have risen 0.3% in August from July. Its annual inflation is seen easing slightly to 4.2% from 4.3% in July.

Overall consumer price inflation is expected to dip slightly to 5.3% from 5.4% in July.

“With the core CPI still seen above 4%, inflation is at a very abnormal level. Powell has been saying inflation will be transient since March but the Fed will probably have to adjust its wording in the next policy statement,” said Yukio Ishizuki, senior strategist at Daiwa Securities.

The Fed will hold its policy meeting next week. The Wall Street Journal reported on Friday that Fed officials will seek an agreement to begin paring bond purchases in November.

“Tapering this year is a done deal. The next question will be whether the Fed will raise interest rates next year. Given persistent inflation, the Fed may not be able to afford to be relaxed about it for too long,” Ishizuki said.

The yen eased slightly to 110.005 yen to the dollar but stayed in its familiar territory over the past few weeks around 110.

Limited moves in the currency pair saw traders reducing expectations for market swings.

Implied volatilities on dollar/yen options have fallen to historic levels, with one-month volatility falling to as low as 4.625%, its lowest since February last year just before the pandemic.

Risk-sensitive currencies were little moved for now, with sterling at $1.3836 and the Australian dollar at $0.7362.

While the world’s stock markets stood near record highs, supporting risk sentiment, some analysts warn of growing headwinds to risk sentiment.

“Global risk appetite is edging toward a more tenuous and twitchy phase. A discordant G2 is increasingly the problem,” said Alan Ruskin, macro strategist at Deutsche Bank in New York.

“The U.S.-China trade dispute has not found any resolution. On the contrary, market forces are dominating quantity targets, and widening bilateral balances will again prove a source of tension,” he added.

Many investors were also keeping an eye on developments in China, where cash-strapped property developer Evergrande struggled to fend off solvency concerns while a relentless wave of regulatory moves by Beijing hit big tech firms.

In the crypto market, Bitcoin dropped to as low as $43,400, its lowest in almost a week and last stood at $44,973 while ether also eased to $3,283.

Dollar hits two-week high as Fed tapering expectations grow

The dollar stengthened to a two-week high versus a basket of major currencies on Monday as market expectation builds that the Federal Reserve could taper its stimulus sooner rather than later despite a surge in COVID-19 cases.

The dollar index rose 0.3% to 92.880 in early European trading hours, its highest level since August 27. It was last up 0.2%.

A flurry of U.S. economic data is due out this week, starting with U.S. consumer price data on Tuesday, which will frame the economy’s progress ahead of the Federal Reserve’s meeting next week.

The Philadelphia Fed President Patrick Harker became the latest offical to say he wants the central bank to start tapering this year, saying in a Nikkei interview that he was keen to scale back asset purchases.

“The U.S. dollar’s recent rebound has coincided with more hawkish comments from Fed Presidents,” FX analysts at MUFG said in a note.

The Wall Street Journal reported on Friday that Fed officials will seek to make an agreement to begin paring bond purchases in November.

Further U.S. data this week should help set the tone ahead of the meeting, with retail sales and productions figures also slated for later this week.

The euro was among the currencies to lose ground to the dollar, dipping 0.3% to $1.17750, its lowest level in a little over two weeks, after the European Central Bank said last week it would start to trim its own emergency bond purchases.

The yen also fell back around 0.2% and was last at 110.090.

“A couple of dynamics favour the dollar,” said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.

“Re-opening still faces challenges from the consumer, who is cautious and from bottlenecks which restrict ability for the economy to rebound with some gusto.

“At the same time rising infections suggest we may still need to reintroduce restrictions of some sort. The other thing is that the Fed continues to signal that tapering is coming.”

Dollar set for first winning week in three with Fed in focus

The dollar headed for its first winning week in three on Friday after rebounding from a payrolls-induced sell-off, as investors continued to ponder the timing of a tapering of Federal Reserve stimulus.

The dollar index, which gauges the greenback against six major peers, was little changed on the day at 92.541, remaining on course for a 0.49% weekly rise.

Last Friday, it sank to the lowest since Aug. 3 after data showed the U.S. economy created the fewest jobs for seven months, reducing the odds of an imminent reduction of the Fed’s asset-purchase program.

Since then, a number of officials have come out to suggest a taper is still likely this year though, including Fed Governor Michelle Bowman, who said overnight that the weak August labor report won’t throw the central bank off course.

Data on Thursday showed that the number of Americans filing new claims for jobless benefits fell last week to the lowest level in nearly 18 months, offering more evidence that job growth was being hindered by labor shortages rather than cooling demand for workers.

“The Fed looks set to taper later this year, underscored by recent comments this week,” Mark McCormick, global head of FX strategy at TD Securities, wrote in a research note.

However, even with the trend toward monetary policy becoming less accommodative globally, financial conditions remain ultra-loose, which “binds how much room the USD has to run and favors selling rallies,” McCormick said.

The euro was flat at $1.18235 on Friday, on track for a 0.47% decline this week.

The single currency got some small measure of support overnight, after the European Central Bank said it would trim emergency bond purchases over the coming quarter, as widely expected.

In the past two quarters, the bank has bought around 80 billion euros worth of debt each month. It provided no numerical guidance for the three months ahead, but analysts had predicted before the meeting that purchases would fall to between 60 billion and 70 billion euros in those months.

“It was a big event for economists, not so much for traders,” Chris Weston, head of research at broker Pepperstone in Melbourne, wrote in a note to clients. “The volatility was not there.”

Euro support at $1.18 “needs to give way for shorts to get any real traction here,” he said.

The dollar was little changed both on the day and for the week at 109.71 yen, still meandering in the middle of its range of the past two months.

The Aussie dollar slipped 0.07% to $0.7363, heading for a 1.16% slide this week.