The London-dollar started the last quarter of 2021 near the highest level of the year and moved to its best week since June as investors expected the hackish-sounding Federal Reserve to raise US interest rates faster than its key counterparts.
The cautious attitude of the market has supported the dollar, which is seen as a safe haven, due to the Covid-1 concerns, concerns over China’s growth and a Washington gridlock to lift the U.S. government’s orbital limit.
The refinance measure of the dollar index stood at 94.313, up 1.1 percent so far this week, the largest weekly increase since the end of June.
“Last week’s Fed meeting added new life to the debate over a possible Fed fund rate hike in 2022,” said Jane Foley, head of FX strategy at Rabobank.
“This is positive for the USD on both fronts. First, the USD looks good from a straightforward interest rate differential perspective. Second, the US rate hike and a strong USD will depend on the outlook for growth in EM.
Foley said the outlook for emerging market growth is already plagued by recession concerns and fears of an energy crisis in China.
“The result is that USD reduces risk appetite and flows from the high-risk EM market.”
The euro was stable at ৫ 1.1582 on Friday, but fell about 1.3 percent during the week and touched its lowest level since July 2020 at প্রায় 1.1.
The yen has bounced overnight from a 19-month low but has fallen 0.6 percent for the week and has flowed from Japan to the dollar twice a week due to an increase in U.S. Treasury yields. It was last traded at Rs 111.21 per dollar.
Benchmark 10-year Treasury yields are rising for the sixth consecutive week and actual 10-year yields, discounted for inflation, are growing much faster than their European counterparts.
“As long as markets are confident that the United States will begin to tighten monetary policy within a reasonable period of time, the dollar should be well supported,” said Soit General strategist Kit Jukes.
“The European Central Bank is likely to keep rates below zero, while the Fed hikes will have to keep the euro / dollar in the post-2014 range, with a center of gravity of around 12 1.12-1.16,” he said.
Commodity currency bounced back to the dollar on Thursday after Bloomberg reported that China had instructed energy companies to ensure supplies at any price in the winter, but was under pressure again on Friday.
Beijing is scrambling to supply more coal to utilities to restore supply amid a market turmoil caused by the potential impact of economic growth amid the power crisis.
The Australian dollar fell 0.3 percent to 7 0.7203 and fell 3.6 percent in the third quarter – the worst performance of any G10 currency against the dollar – as Australia’s top export, iron ore, fell sharply. The New Zealand dollar fell 0.2 percent to 68 0.6882.
The two countries’ central banks will meet next week, the Reserve Bank of New Zealand will watch the hike and the Reserve Bank of Australia is expected to live up to its forecast for 20224.
Sterling was also low last quarter, down 2.5 per cent, and ready to log on for its worst week in more than a month, despite growing supply chain problems due to concerns over a hawk-sounding central bank.
Sterling traded down 0.2 percent at a 9-month low of 3 1.3452.
Markets in Hong Kong and China were closed on Friday. Traders are waiting day after day for U.S. personal spending and core spending defaulter data and are looking nervously at any progress in the debate over raising the U.S. debt limit.
Deadline for approval of additional Treasury orrowing in mid-October.
Written by Twick Carvalho
This News Originally From – The Epoch Times