The dollar bounced back from 2-week lows after US Treasury yields rose to 14-year highs, while sterling fell back on data showing UK consumer price inflation hotter. This is expected amid concerns that the country’s economy will sink deeper into recession, reinforcing expectations of an even stronger interest rate hike from the Bank of England (BoE) in November.
The Dollar index – which compares the USD against a basket of major partner currencies – ended October 19 in Vietnam time up 0.73% to 112.76. The euro this session fell 0.80% to $0.9782.
Yields on 10-year US Treasuries continued to rise as investors maintained expectations that the Federal Reserve (Fed) will continue to raise interest rates aggressively to reduce overheating inflation.
The US central bank is expected to raise interest rates by 75 basis points at its meeting on November 1-2, and is expected to raise rates by another 50 or 75 basis points in December.
“It’s still very early to devalue the dollar” said Mazen Issa, senior FX strategist at TD Securities. The greenback is likely to continue to rise until inflation picks up. The core is adjusted and the Fed moves to a softer stance, “neither of which is likely to happen in the short term”.
The pound sterling ended October 19 Vietnam time fell 0.61% to $1.1249 after data showed annual UK consumer price inflation rose 10.1% in September, more than better than expected, and re-established the 40-year high that was reached in July.
Investors expect the pound to remain under pressure amid rising inflation and a recession in the UK that could prompt the BoE to raise interest rates by 75 basis points instead of 100 at the meeting in November.
While a normal rate hike will boost the value of a currency, in the UK’s case the issue is how much damage that rate hike will do to an already precarious economy.
“The economy will take a hit and that means currencies will have to be the relief valve to reflect that change in the macro outlook” said strategist Issa.
UK financial uncertainty is also affecting the outlook for markets globally.
“We suspect this is more than a modest pause in the dollar bull cycle” said Sean Callow, currency strategist at Westpac in Sydney.
The greenback is also at a 32-year high against the Japanese yen, approaching the 150 yen mark, a level where some traders think the Finance Ministry and the Bank of Japan could step in to drag the domestic economy currency rebounded.
Traders are on high alert for the possibility of the Japanese Ministry of Finance and the Bank of Japan (BoJ) intervening in the market once again, as the JPY/USD pair approaches the psychological barrier important – 150 JPY. An exchange rate of 145 a month ago forced Japan to intervene by buying the first yen since 1998.
“A well-rounded number like 150 is likely to be broken in the short term” but given the BOJ’s position as the only central bank among advanced economies still pursuing a policy of negative interest rates, “It’s hard to see why the pair hasn’t ‘expanded to the 150-155 area,’” Callow added.
Japanese Finance Minister Shunichi Suzuki on Wednesday (October 19) said he was closely monitoring the currency rate.
So far, the BoJ has remained an exception amid a wave of global policy tightening by central banks aimed at combating soaring inflation, as they focus on strengthening an economy that is ‘hoping’ his ‘man’.
In the crypto market, Bitcoin plummeted to $ 19,138 by the end of October 19 Vietnam time when investor sentiment was not very optimistic about the prospect of cryptocurrencies, so whenever the price of bitcoin rises This will lead to an increase in investor selling.
Gold prices fell to a three-week low as the dollar and US Treasury yields rose, as investors worried about the prospect of a strong Fed rate hike.
By the end of October 19, Vietnam time, spot gold price fell 1.1% to $1,633.51 an ounce, after hitting its lowest since September 28; December gold futures fell 1.1% to $1,637.70.
“We’re going to have a pretty strong rate hike and maybe the uptrend won’t reverse anytime soon, so the gold market is reacting (to that)” said Bart Melek, head of commodity strategy of TD Securities, said
“Gold prices are very likely to fall below the lows hit in September around $1,615, and then $1,600” said Fawad Razaqzada, market analyst at City Index.
References: Refinitiv, Coindesk