The dollar rises as energy surges drive inflation concerns

London — In the nervousness that rising energy prices could spur inflation and rising interest rates, and as traders waited for U.S. employment data for clues as to when to tighten Federal Reserve policies. , The dollar rose on Wednesday.

The Reserve Bank of New Zealand raised its official discount rate for the first time in seven years, but its resolute hawkish tone seemed to raise expectations that the Fed would follow suit and Kiwi would fall as US yields rose.

Kiwi was finally down 0.9% to $ 0.6891 and the Australian dollar was down 0.7% to $ 0.7265.

The euro was fixed below $ 1.16 and finally bought $ 1.1567. That’s well above last week’s 14-month low of $ 1.1563.

The yen fell to a weekly low of 111.79 per dollar in parallel with the rise in Treasury yields that could draw investment flows from Japan. I visited last Thursday within the 18-month valley of 112.08.

The greenback is backed by investors’ support as the Fed begins declining asset purchases this year and lays the groundwork for a break from pandemic interest rate setting long before the central banks of Europe and Japan. increase.

Francesco Pesor, ING’s G10FX strategist, said at the Fed’s September meeting that the US yield curve soared again, filling the hawkish “dot plot” and mixing “bullish cocktails” into the dollar. Said that.

Dot plots are charts that show the Fed’s policymakers’ expectations of where interest rates will be in the future.

“Adding strong employment data and market expectations could lead to Fed forecasts for a three-year sharp tightening cycle starting next year,” Pesor said in a morning note.

“Therefore, pay attention to the ADP data today. An upward surprise to the 430k consensus value could raise short-term US interest rates and the dollar.”

World currency
Arrangements of various world currencies, including RMB, US Dollar, Euro and British Pound, taken on January 25, 2011. (Kacper Pempel / Illustration / Reuters)

The federal funds rate market has been priced to raise interest rates starting around November 2022, but interest rates will be high throughout most of 2025, despite Fed members predicting to reach 1.75% in 2024. We expect it to be the highest at just over 1%.

Long-term US yields rose on Wednesday, with the US dollar index rising 0.1% to 94.082.

U.S. non-farm payrolls data scheduled for Friday are considered important to inform the Fed’s tone and timing, especially if the numbers are severely impressed or disappointed. .. Private salary figures, which are sometimes unreliable guides, are scheduled around 1215 GMT.

A major mistake in market expectations for about 428,000 jobs added in September could undermine expectations for Friday’s wider figure, which is projected to be 473,000.

Concerns that rising energy prices could drive growth or flow into broader inflation outweighed the support brought by the surge in commodity-linked currencies.

The Canadian dollar fell from its one-month peak and the Norwegian krone retreated from its three-month top.

Sterling recovered some of the plunge against the dollar last week, but lost momentum throughout the Asian session, dropping 0.4% to $ 1.3570, just below the three-week peak of the euro on Tuesday.

In New Zealand, 25 basis point rate hikes and the familiar hawkish tone from the central bank gave little support to the currency, even though further rate hikes were expected in November and February.

Jason Wong, senior market strategist at BNZ in Wellington, said:

For Kiwi, he said it meant “the US dollar was in charge.”

“It’s really about the Fed, but globally, the energy crisis seen in China and Europe all affects the mix, everything strains the market and adds dollar support.”

By Ritvik Carvalho