Dollar gains as Fed are seen to remain hawkish; Yen remains vulnerable
SG – Singapore The dollar strengthened on Monday as a result of solid consumer spending statistics that showed ongoing underlying inflation pressure and quenched speculation that the U.S. Federal Reserve will delay its aggressive interest rate hiking program.
The Bank of Japan’s (BOJ) decision to maintain its ultra-low interest rates on Friday and BOJ Governor Haruhiko Kuroda’s continued dovish remarks in the face of rising interest rates abroad both contributed to the dollar’s 0.44 percent advance to 148.08 yen.
The dollar was up more than 0.2 percent against the New Zealand dollar and the pound in early Asian trading. It partially recovered from last week’s losses after falling on expectations of a probable Fed strategy change.
“Markets have sort of anticipated a Fed monetary policy reversal. Given the economy’s resilience and, in particular, its strong inflation, I believe that is premature, according to Carol Kong, a currency strategist at the Commonwealth Bank of Australia (CBA).
Data released on Friday revealed that, despite underlying inflation pressures continuing to soar, U.S. consumer spending increased more than forecast in September. Following this week’s FOMC meeting, when officials make their announcement on Wednesday, they are anticipated to raise interest rates by another 75 basis points (bp).
The pound was last down 0.19 percent at $1.1593 but was still on course for a rise of about 4 percent for the month after the market upheaval caused by the economic plan of former British prime minister Liz Truss last month.
Since the nomination of new prime minister Rishi Sunak, who has promised to guide the country out of a severe economic crisis, investors have found solace in his selection.
According to CBA’s Kong, “Sterling has definitely strengthened quite a bit over the past several weeks, and I believe a lot of that really represents an unwinding of the recent market turbulence and the easing of UK policy uncertainty.”
The euro was down 0.09 percent at $0.99595, but it was also on track to post its first monthly rise since May of more than 1 percent. Despite my doubts that it can be sustained, the recent dramatic drop in gas prices has helped the euro, too, according to Kong.
The Australian dollar last traded 0.5% lower at $0.6408 ahead of another central bank decision this week. Even though last quarter’s inflation spiked to a 32-year high, the Reserve Bank of Australia (RBA) is anticipated to hike interest rates at its meeting on Tuesday by a more restrained 25 bp.
It’s too soon for the RBA Board to reconsider the decision it made at its October meeting regarding reducing the magnitude of rate hikes, according to ANZ analysts, who predict the Board to continue with a 25 bp rate boost on Tuesday.
However, we are now searching for a follow-up 25 bp in December. The RBA cash rate has reached it’s high and will increase by another 75 basis points in the first half of 2023. The kiwi was last down 0.14 percent at $0.58075, although it was still on pace for a gain of more than 3 percent for the month, reversing two straight months of losses.
The U.S. dollar index decreased 0.02 percent to 110.79 against a basket of currencies, although it was still well above the one-month low of 109.53 reached last week.