FOREX-Dollar set for best week since June on expected Fed tightening

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* Euro steady below $1.16; Dollar/Yen 111.00 . Above this

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* Sterling licking wounds, heads for worst week in a month

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* Graphic: World FX Rates

LONDON, Oct 1 (Businesshala) – The dollar began the final quarter of 2021 near its highest level of the year, and was heading for its best week since June, as investors expected the Federal Reserve to hold back US interest. Will pick up the rates sooner than myself. Chief Colleagues.

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Cautious market sentiment due to COVID-19 concerns, faltering China’s growth and the Washington impasse ahead of the US government’s deadline to lift the borrowing limit also supported the dollar, which is seen as a safe-haven asset.

Refinitiv’s measure of the dollar index fell to 94.166, up 1.1% so far this week, its biggest weekly increase since the end of June.

“Last week’s Fed meeting added new life to the debate about a possible 2022 Fed funds rate hike,” said Jane Foley, head of FX strategy at Rabobank.

“This is positive for USD on two fronts. Firstly USD looks better from a straight interest rate differential perspective. Second, hike in US rates and a stronger USD will impact the growth outlook in EMs.

Foley said the growth outlook for emerging markets is already fueled by concerns of a slowdown in China and fears of an energy crisis.

“The result is that USD benefits from declining risk appetite and exits higher risk EM markets.”

The euro was up 0.1% on Friday at $1.1588, but has fallen nearly 1.3% during the week, and through key support around $1.16, to touch its lowest level since July 2020.

The yen jumped from a 19-month low overnight but has lost 0.6% for the week and doubled in a fortnight as a rise in US Treasury yields pulled inflows from Japan into the dollar. It was last trading at 111.21 per dollar.

The benchmark 10-year Treasury yield rose for the sixth straight week and real 10-year yields, discounted for inflation, are rising faster than their European counterparts.

Commodity currencies jumped on the dollar on Thursday after a Businesshala report that China had ordered energy companies to secure supplies for the winter at all costs, but came back under pressure on Friday. The offshore yuan rose to a two-week high of 6.4420.

Beijing has been scrambling to deliver more coal to utilities to restore supply amid a power crunch that has rattled the market because of the prospect of economic growth.

Francesco Pesol, G10 FX strategist at ING, said: “The reasons for doubting the lack of energy supply in China are more deeply rooted and boil down to China’s new policy aimed at reducing greenhouse emissions, which has put increasing pressure on domestic coal production. restrictions have been imposed.”

“At the same time, a historic import route – the one with Australia – has recently come under pressure amid geopolitical and trade tensions between the two countries, which have recently seen China impose tariffs on Australian coal.”

Pesol said the way it is affecting the FX market is through the belief that the Chinese central bank is now welcoming a stronger yuan in an effort to insulate the country against rising commodity prices.

“It appears that the markets are rapidly sinking their teeth into this narrative, and CNY’s resilience to the Evergrande saga looks like a testament to this.”

The Australian dollar rose 0.3% to $0.7242 and fell 3.6% in the third quarter – the worst performance of any G10 currency against the dollar – as prices of Australia’s top export, iron ore, fell sharply. The New Zealand dollar rose 0.2% to $0.6911.

The central banks of the two countries meet next week, which saw the Reserve Bank of New Zealand hiking while the Reserve Bank of Australia is expected to stick with its forecast where they are until 2024.

Sterling was also an underperformer last quarter, falling 2.5%, and is set to enter its worst week in more than a month, despite rising supply chain problems on concerns about a stifling central bank. Weighed with

Sterling was trading at a 9-month low of $1.3516 with a gain of 0.3%.

Markets in Hong Kong and China remained closed on Friday. Traders await US personal spending and core consumption deflator data later in the day and watch nervously for any progress on the debate on raising the US debt limit.

The deadline to authorize additional Treasury borrowing looms in mid-October.

Reporting by Rithvik Carvalho; Additional reporting by Tom Westbrook in Singapore and Anushka Trivedi in Bengaluru; Editing by Nick McPhee and Chizu Nomiyama


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