Dollar Holds Near Weekly High as Fed Rate Hike Bets Rise
Due to rising oil prices and bond yields caused by Middle Eastern tensions, the dollar maintained close to its previous week’s peak on Friday. This was in anticipation of the release of U.S. inflation numbers later in the day. The US dollar index, which tracks the value of the dollar relative to six other currencies, was up 0.4% from the previous day and was trading at 99.15. News that U.S. producer prices rose in August, propelled by a recovery in energy prices, boosted expectations for rate hikes in the United States and sent the dollar soaring on Thursday. In the wake of the Houthis’ conquest of Yemen’s port city of Mocha and their advances toward strategic islands in the Red Sea, Brent crude oil prices were expected to surge by more than 7 percent for the week ending on Friday.
On Friday, energy prices fell. Brent crude, which had surged to its highest level since May, around $110, the day before, fell 4% to $104 per barrel. “Developments in the Gulf leave the balance of risks skewed towards higher oil prices, while stress in bond markets is increasingly bleeding into risk assets,” said Francesco Pesole. “That combination should favour a defensive rotation back into the dollar.” After statistics showed that British growth in July was better than expected, the euro fell 0.2% to $1.159, while the pound stayed put at $1.351. The markets were waiting for the United States Consumer Price Index report, which is due out at 8:30 a.m., because it is one of the last major data points before next week’s Federal Reserve meeting. According to the numbers, consumer prices picked up speed in August due to the price of petrol making a comeback.
According to the CME Group’s FedWatch tool, the probability of a 25-basis-point hike on September 16 is roughly 70% based on Fed funds futures, up from nearly 60% the week before. The benchmark 10-year U.S. Treasury yield drew closer to the carefully watched 5% level on Thursday, as investors fretted over high government debt levels and traders factored in additional rate hikes globally. The selloff in global bonds picked up speed again. “The main focus in financial markets at the end of this week is the deepening sell-off in global bond markets, although the spillovers into the FX market have been modest,” said Lee Hardman.
The US dollar fell 0.3% versus the Japanese yen, reaching 154.02, continuing a two-week losing streak. Data released on Friday showed that wholesale inflation stayed elevated in August, which bolstered the case for a rate hike this month and gave the Japanese currency some strength back. If pricing pressures raise the risks of inflation overshoot, the Bank of Japan is expected to signal a more faster pace of tightening and raise interest rates next week-probably by 25 basis points-according to sources.
