The dollar rebounded again on Friday as U.S. Treasury yields rose ahead of a potentially huge Federal Reserve interest rate hike next week, while the Chinese yuan weakened beyond the psychological threshold. important 7 for a dollar.
The dollar, measured against a basket of currencies, is heading more than 1% higher this week as investors rush to the safety of the greenback. The yuan is the latest currency to hit a multi-year low due to the relentless rise in the dollar. The euro was last down 0.5% at $0.9945, while the pound fell to a fresh 37-year low at $1.1351, down 1% during the month. session.
The dollar index rose 0.5% to 110.26, not far from its two-decade high of 110.79 hit earlier this month. “With the Fed set to rise perhaps another 175 basis points before the end of the year, we expect financial conditions to remain unfavorable for assets in general and this is a clear indication that the US dollar is in the primary beneficiary,” said Derek Halpenny, Research Manager, Global Markets, MUFG.
The towering dollar pushed the offshore yuan past the critical 7 to the dollar threshold for the first time in more than two years overnight, with the yuan hitting a low of 7.037. The onshore unit also broke the key level shortly after markets opened on Friday.
Data showed China’s economy was surprisingly resilient in August, with factory output and retail sales both growing more than expected. But the worsening real estate crisis weighed on the outlook. “Growth and policy divergence between the U.S. and China may continue to support USDCNH over the coming months, although some pullback is seen intermittently,” said Maybank analysts, who noted some “positive surprises” in the Chinese data release.
Traders will now focus on a series of monetary policy meetings from the Federal Reserve, Bank of Japan (BOJ) and Bank of England next week, with the Fed taking center stage. U.S. Treasury yields rose after data released overnight showed U.S. retail sales unexpectedly rebounded in August, while a separate Labor Department report showed initial claims for state unemployment benefits had dropped by 5,000.
Fed funds futures point to a 75% chance of a 75 basis point rate hike at next week’s meeting and a 25% chance of a 100 basis point hike. This could further weigh on the Japanese yen, which has fallen victim to the surging greenback and widening interest rate differentials.
But three sources familiar with the BOJ’s thinking said the central bank has no plans to raise interest rates or change its dovish policy stance to support the yen. The dollar was slightly lower against the yen at 143.43, but remained on course for a fifth consecutive weekly gain.
(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)