Dollar Surges to Two-Month High After Strong PMI Fuels Inflation Fears
US Dollar Strengthens Amid Inflation Concerns and Market Reactions
By Jiaxing Li
Dollar Index and Major Currency Movements
HONG KONG, Sept 24 (Reuters) - The dollar clung to a two-month high on Thursday after a strong manufacturing reading reignited inflation fears and rate-hike bets, while a weak Treasury auction sent yields higher across the curve, providing fresh impetus to the US currency.
The broad dollar strength pushed the euro to $1.1378, a two-month low, while sterling languished near a three-month nadir at $1.3231. The dollar index, which measures the US currency against a basket of peers, held near a two-month high at 101.1.
Impact of Manufacturing Data and Treasury Auction
A stronger-than-expected purchasing managers' report overnight fanned new price concerns and a poorly received auction of five-year U.S. Treasury notes triggered a fresh round of bond selling, with five-year yields crossing 5% for the first time since 2007.
Federal Reserve Policy Outlook
The backdrop of rising inflationary risks and a strong economy means the Federal Reserve is likely to deliver more rate hikes, Governor Michael Barr said on Wednesday in comments viewed by markets as "forward guidance", pushing traders to pile into bets on a second straight policy tightening next month.
Market Sentiment and Analyst Commentary
"Given the relative strength of US growth and increasingly aggressive Fed rate-hike pricing, the US dollar continues to stand firm in its attraction to own," said Chris Weston, head of research at Pepperstone.
Signs the US economy may be overheating are now firmly in focus, and policymakers may need to tighten further if inflation continues to surprise on the upside, he said.
Global Inflation Risks and Commodity Prices
Oil Price Surge and Geopolitical Factors
Inflation risks were also amplified by a nearly 4% jump in oil prices on Wednesday after Iran's president vowed never to surrender, with markets also weighing US President Donald Trump's diesel export ban.
Rate Hike Expectations
Traders now see a nearly 70% chance of another increase when the US central bank next meets in October, according to CME Group's FedWatch Tool, up from the 50% probability a week ago.
Asian Currency and Market Reactions
Japanese Yen and Bank of Japan Policy
At 157.9, the Japanese yen hovered near its three-week low, with traders on alert for possible intervention after markets judged the Bank of Japan's rate hike to a 31-year high last week as insufficiently hawkish.
Japan's Manufacturing Activity
Data released on Thursday showed Japan's manufacturing activity rose at a slower pace in September from the previous month as output and new orders softened.
Australian and New Zealand Dollar Movements
The Australian dollar fetched $0.7035, down 0.07% ahead of the latest jobs data, and the kiwi traded flat at $0.5676.
Chinese Yuan and US-China Relations
Elsewhere, the offshore yuan traded flat at 6.7119 per dollar, as markets watched Chinese President Xi Jinping's first US visit in three years, a high-stakes meeting set to test ties as tensions linger over trade, technology, Taiwan and Tehran.
(Reporting by Jiaxing Li in Hong KongEditing by Shri Navaratnam)
