In early trading on Wednesday, the greenback reached its highest level of the year, having risen along with Treasury yields on market concerns that the Federal Reserve may begin to reduce preferential policies just as the global economy begins to decline.
The Euro sank to $1.1657, its weakest since November 2020, while the dollar index surged to 93.891, its highest level in 11 months. The Yen, which is vulnerable to variations in U.S. yields because higher rates have the potential to attract capital out of Japan, fell to an 18-month bottom of 111.685 per USD before recovering a fraction to 111.47. It had little to do with Fumio Kishida’s nomination as head of Japan’s governing Liberal Democratic Party (LDP), effectively ensuring that he will become the nation’s next prime minister shortly.
DXY CHART. Source: Tradingview.com
The Pound dropped to the lowest since January on Tuesday as investors fretted about the financial ramifications of a gas scarcity and a hunt for gasoline. The pound was trading at $1.3505, its lowest level since January. In the words of Kimberley Mundy, an analyst at CBA, “we are anticipating USD momentum to persist for the year…and this is merely due to the sheer forecast for fiscal strengthening.” She went on to say that a rate increase might be on the books by late 2022.
GBP/USD CHART. Source: Tradingview.com
Treasury yields have risen in recent days as the Federal Reserve prepares to begin reducing just before the close of the year and as prices appear to be sticking around longer than previously predicted. The return on the key 10-year Treasury note fell on Wednesday, although it is still up almost 20 points lower in a week, at 1.5132 percent.
China’s Energy Prices
Electricity prices are soaring, and worries are growing concerning China’s economic prospects, which are now jeopardized by the chaotic implosion of contractor China Evergrande as well as power disruptions that are affecting production.
Despite the dollar’s value, China’s currency fell on Wednesday after Japan’s large Government Retirement Equity Fund stated that it would not purchase Chinese treasury securities despite the implementation of Chinese government bonds in a significant index of international investments.
MSCI’s equity funds currency price fell by the most in three weeks yesterday, and it continued to tumble on the day, reaching a one-month bottom in the process. In the words of Jane Foley, senior currency analyst at Rabobank in London, “we do not expect the greenback to decline much until trust in developing markets has been restored.” In an atmosphere driven by fears of increased oil prices as well as firmer U.S. interest rates, “it will be much more challenging to attain.” “Our six-month euro/dollar objective of 1.16 appears set to be reached sooner than we had anticipated.”
Australia and New Zealand
The Australian and New Zealand currencies were lagging, with the kiwi slipping to a new one-month bottom of $0.6936, according to the latest data. The Australian dollar remained stable at $0.7239. Banking system meetings in both nations are scheduled for next week, and futures pricing suggests that the Federal Reserve board will follow the lead of the Norges Bank and raise interest rates.
AUD/USD Chart. Source: Tradingview.com
“The New Zealand dollar stays stuck near $0.7000, as the influence of the hawkish RBNZ is countered by rising expectations for the Federal Reserve,” said Imre Speizer, an expert at Westpac. President Christine Lagarde of the European Central Bank (ECB), Federal Reserve Chair Jerome Powell, Governors of the Bank of England, and the Bank of Japan will be on a platform at a European Central Bank discussion starting at 1545 GMT on Thursday.