NEW YORK: The dollar rose against the euro on Wednesday before several Federal Reserve officials were due to speak and as investors watched the war between Hamas and Israel for signs of escalation.
The currency has benefited from expectations the US central bank will hold rates higher for longer as it battles to bring inflation closer to its 2% annual target.
“Largely I think we’re still basing currency movements on interest rates,” and the Fed’s “very determined attempt to keep interest rates high to fight inflation,” said Joseph Trevisani, senior analyst at FXStreet.com in New York.
Since mid-July, the benchmark 10-year Treasury yield has climbed about 100 basis points and the dollar index has risen around 7%.
Fed funds futures traders are pricing in a 40% chance that the Fed could hike rates again by year-end, but only 11% odds of an increase next month, according to the CME Group’s FedWatch Tool.
Minneapolis Fed President Neel Kashkari on Tuesday said it has taken much longer than expected for inflation to come down, and it is “still too high.”
The Fed should extend its pause on interest rate increases because of growing evidence that higher borrowing costs will slow the economy, Philadelphia Fed president Patrick Harker said.
Other regional Fed presidents are due to give comments on Wednesday, before Fed Chaiman Jerome Powell is also scheduled to speak on Thursday.
Fed officials will enter into a blackout period on Oct. 21 before the central bank’s Oct. 31–Nov. 1 meeting.
The dollar index was last up 0.15% on the day at 106.37. It is holding below the 107.34 level reached on Oct. 3, the highest since November 2022.
The euro dipped 0.23% to $1.0552. It is up from $1.0448 on Oct. 3, the lowest since December 2022.
The dollar is also benefiting from safe haven demand on concerns over the conflict in the Middle East.
US President Joe Biden arrived in Israel on Wednesday pledging solidarity in its war against Hamas and saying that a blast that killed huge numbers of Palestinians at a Gaza hospital appeared to have been caused not by Israel but by its foes.
The Chinese yuan briefly jumped after official data showed China’s economy grew at a faster-than-expected clip in the third quarter, while consumption and industrial activity in September also surprised on the upside.
The yuan hit a one-week high of 7.2905 per dollar, though it then retreated to 7.316. The China-sensitive Australian and New Zealand dollars both jumped before unwinding their gains.
Sterling fell after a brief pop as British consumer price inflation (CPI) unexpectedly held at 6.7% in September, remaining the highest of any major advanced economy and keeping alive the possibility of another rise in interest rates.
The pound was last down 0.13% at $1.2168.
The yen was last up slightly at 149.70 to the dollar.