Dollar scales 10-week high on rising bets Fed would increase US rates in December
The dollar was firm against a basket of currencies on Monday, hovering at a 10-week high, as surprisingly stronger US wages data in September bolstered bets the Federal Reserve would raise interest rates in December.
Strength on Wall Street with the Dow and Nasdaq equity indexes setting record peaks also supported the greenback.
The dollar index’s near 3 per cent recovery from a more than 2-1/2 year low in the past month has stemmed from signs that the US central bank may raise key borrowing costs for a third time in 2017 and President Donald Trump’s tax reform plan might be back on track.
But some analysts said the greenback’s recovery is limited as US economic growth remains modest and overseas central banks are considering either raising rates or reducing their bond purchases.
“We see some further dollar strength from a possible December rate hike, but the upside is limited because the dollar is an overall trend of long-term weakness,” said Eric Viloria, currency strategist at Wells Fargo Securities in New York.
Another factor that would cap further gains in the dollar is the tension between the United States and North Korea.
On Saturday, Trump said “only one thing will work” in dealing with Pyongyang. He did not make clear to what he was referring, but his comments seemed to be a further suggestion that military action was on his mind.
The dollar index – which measures the greenback against a basket of six other major currencies – on Friday hit 94.267, its highest since July 20 following a stronger-than-forecast 0.5 per cent increase in average hourly earnings last month. It was little changed at 93.789 on Monday.
Interest rates futures implied traders saw an 88 per cent chance the Fed would raise rates in December, according to CME Group’s FedWatch programme. Data on Friday showed speculators cut their bearish bets on the US dollar in the week up to last Tuesday.
Currency trading volume was light due to holidays in Japan, Canada, South Korea and the United States. Meanwhile, sterling was the biggest mover among developed-market currencies, recovering as much as 0.9 per cent on signs that a plot to topple Prime Minister Theresa May would not be successful, easing political uncertainty a touch.
The pound was last up 0.6 per cent at US$1.3138.
The New Zealand dollar touched a four-month low at US$0.7052 after a final vote count in the country’s tight general election released over the weekend failed to identify a clear winner.