NEW YORK: The dollar bounced from two-week lows on Wednesday as Treasury yields rose to 14-year highs, while sterling weakened after hotter-than-expected UK consumer price inflation and fears of a deeper recession in Britain bolstered expectations of a less aggressive rate hike by the Bank of England (BoE) in November.
The greenback also hit a 32-year peak against the yen and approached the 150 level where some traders think the Ministry of Finance and Bank of Japan might intervene in the tumbling currency.
Benchmark 10-year Treasury yields resumed their march higher as investors maintained expectations that the Federal Reserve will continue to aggressively raise rates to bring down soaring inflation, boosting demand for the US currency.
The US central bank is expected to lift rates by another 75 basis points when it meets on November 1-2, with an additional 50 basis points or 75 basis points increase also likely in December.
It is “still very much premature to try to fade the dollar,” said Mazen Issa, senior foreign exchange strategist at TD Securities. The greenback will likely continue to gain until momentum in core inflation moderates and the Fed pivots to a less hawkish stance, and “neither are likely in the short term”.
The dollar index gained 0.73% against a basket of major currencies to 112.76. The euro fell 0.80% to $0.9782.
The British pound fell 0.61% to $1.1249 after data showed that Britain’s annual consumer price inflation inched up to 10.1% in September, rising more than expected and returning to a 40-year high hit in July.
“The outlook for the UK economy remains relatively murky, with ballooning borrowing costs, soaring consumer prices and a government in chaos with its credibility shot to bits unlikely to inspire much confidence,” said Matthew Ryan, head of market strategy at Ebury.
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