Home Business Dollar higher as bets rise on another oversized Fed rate hike

Dollar higher as bets rise on another oversized Fed rate hike

9 min read
Comments Off on Dollar higher as bets rise on another oversized Fed rate hike
0
69


Article content

NEW YORK — The dollar rose on Tuesday, but was below the 20-year high it hit a day earlier, while the euro edged higher but failed to remain above parity, as markets priced in super-sized interest rate hikes by both the U.S. Federal Reserve and the European Central Bank (ECB).

The dollar index was up 0.285% at 108.96 at 10:35 a.m. Eastern time (1435 GMT), after touching 109.48 on Monday, its highest level since September 2002.

Article content

The greenback has been supported by aggressive rate hikes by the Fed in an effort to reel in decades-high inflation.

Advertisement 2

Article content

Some traders had bet the Fed would pivot to a more accommodative stance early in 2023, but those expectations were dashed on Friday when Chairman Jerome Powell said at the Jackson Hole conference in Wyoming that the central bank would raise rates and keep them high for some time.

“The dust is finally settling now post-Jackson Hole, and the question for markets is, what’s going to change the narrative? And an argument is it’s Friday’s payroll, so we’re seeing a bit of a consolidation of last week’s move playing out here,” said Simon Harvey, an FX market analyst at Monex Europe.

All eyes will be on U.S. nonfarm payrolls data for August on Friday, as any cooling in labor demand would ease pressure on the Fed to stick with outsized rate hikes.

Advertisement 3

Article content

Data on Tuesday supported a stronger dollar.

One report showed that U.S. consumer confidence rebounded more than expected in August after three straight monthly declines, with vacation intentions rising to an eight-month high, a potential positive signal for consumer spending.

Another data set showed that demand for labor remained high in July as U.S. job openings increased.

Traders increased their bets on the chance of a third straight 75-basis-point rate hike by the Fed in September to 76.5% from around 66.5% about an hour before Tuesday’s U.S. economic data was released.

The European common currency was 0.02% higher at $0.9997, dropping back below parity with the greenback after Tuesday’s U.S. data was released.

Advertisement 4

Article content

The euro has risen over the past few sessions by aggressive pricing of expected ECB rate hikes, as well as a softening of natural gas prices, said John Hardy head of FX strategy at Saxo Bank.

“It’s also noticeable we’ve seen a bit of magnetism around this parity level for euro/dollar, so many times these big round levels can become major sticking points,” he said.

British and Dutch wholesale gas prices eased on Tuesday as Europe almost reached its target of gas inventories being 80% full.

Market pricing indicates roughly a 50% chance of a 75-basis-point interest rate increase at the ECB’s next meeting after a parade of ECB speakers at Jackson Hole backed the case for a big hike, though this pricing came down a little on Tuesday.

Also on traders’ radars are several ECB speakers due to make public remarks later on Tuesday, which could guide markets toward or away from such a large rate increase.

Sterling fell 0.56% to $1.164 coming off of a UK bank holiday on Monday.

The dollar was down 0.14% against the Japanese yen at 138.895 yen.

Bitcoin fell back below the $20,000 level after having hit a six-week low of $19,526 over the weekend.

(Reporting by John McCrank in New York; additional reporting by Alun John in Hong Kong; Editing by Jacqueline Wong, Bradley Perrett, Chizu Nomiyama and Jonathan Oatis)

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.



Source link

Load More Related Articles
Load More By 
Load More In Business
Comments are closed.

Check Also

year JGB yield falls, longer-term notes keep rising

Article content TOKYO — The Japanese government bond market moved in mixed directions on W…