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Dollar higher as risky assets tumble; yen rebounds from 1998 lows
Global Banking & Finance Review®
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By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The safe-haven dollar rose to a fresh four-week high against a basket of currencies on Monday, supported by fears of a global economic slowdown and bets on steep interest rate hikes by the U.S. Federal Reserve.
Global financial markets continued to smart from Friday’s hotter-than-expected U.S. inflation data that led to a broad-based drop in risk sentiment and fuelled bets on even more aggressive policy tightening.
On Monday, government bonds sold off and stock markets around the globe took a beating.
“The USD extended its gains from Friday as risk continues to unwind across the board,” said Brad Bechtel, global head of FX at Jefferies said in a note.
The U.S. Dollar Currency Index, which tracks the greenback against six other major currencies, was up 0.4% at 104.83, within sight of the 2-decade high of 105.01 touched in mid May.
Traders have a lot on their plate this week, including policy meetings by the Fed, the Bank of England and the Swiss National Bank.
The U.S. Federal Reserve is widely expected to raise its key interest rate by 50 basis points on Wednesday, with some, including Barclays and Jefferies, expecting to the Fed to raise rates by 75 basis points.
“A 75 bps (basis points) move is definitely going to be a surprise for some who are holding a hard line on 50 bps,” Bechtel said, adding he expects the dollar index to move higher on such a move.
The battered Japanese yen, floundering near lows against the greenback, not seen since 1998, was one major currency that advanced against the dollar on Monday.
The yen found some support from comments by Japan’s top government spokesperson on Monday that Tokyo is concerned about the currency’s sharp fall and stands ready to “respond appropriately” if needed.
The Bank of Japan (BoJ) has so far resisted pressure to tighten policy, weakening the country’s currency.
On Monday, the dollar was 0.6% lower at 133.58 yen.
The Australian dollar, seen as a liquid proxy for risk appetite, fell 1.3% and the New Zealand dollar fell 1.4%.
Sterling fell to a one month low against the dollar on Monday, coming under selling pressure after data showed Britain’s economy had unexpectedly shrunk in April. Tensions with the European Union over post-Brexit trade with Northern Ireland also weighed on the pound, which was down 1.1% to $1.2175.
Bitcoin slumped 19.1% on Monday after major U.S. cryptocurrency lending company Celsius Network froze withdrawals and transfers citing “extreme” conditions, in the latest sign of how financial market turbulence is causing distress in the cryptosphere.
(Reporting by Saqib Iqbal Ahmed; Editing by William Maclean)
The U.S. Dollar Currency Index measures the value of the U.S. dollar against a basket of six major currencies, providing an indication of the dollar's strength in the global market.
Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power. It is often measured by the Consumer Price Index (CPI).
A safe-haven currency is a currency that investors turn to during times of economic uncertainty or market volatility, as it tends to retain its value or appreciate when other assets decline.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are influenced by central bank policies and economic conditions.
A global economic slowdown refers to a period when the overall economic growth rate decreases across multiple countries, often leading to reduced consumer spending and investment.
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