Dollar rides high on Fed rate-hike bets

SINGAPORE: A surging dollar has swept past chart resistance and is heading toward its sharpest monthly gain in almost a year on Thursday, as traders bet on a strong US economy propping up short-term interest rates ​and waited on key inflation data.

The dollar has broken the $1.14 level against the euro this week and ‌hit its strongest in 13 months at $1.1325 overnight, before steadying in Asia at around $1.1353.

At 161.73 yen , it is within a whisker of its highest in just over four decades on the struggling Japanese currency.

Dollar strength has pushed gold below $4,000 an ounce for the first time in more ​than seven months and briefly sent bitcoin under $60,000 for the first time since 2024.

The dollar index , which measures ​the currency against a basket of six major peers, made a 13-month peak at 101.8 ⁠overnight and started the Asia session steady around 101.6.

The Iran war and jump in oil prices reversed market expectations for ​U.S. rate cuts this year and a surprisingly hawkish-sounding debut from Kevin Warsh as Federal Reserve chair last week has traders ​pricing a U.S. hike as soon as October.

Since the start of May, 2-year US Treasury yields , which track short-term rates expectations, are up 27 basis points to 4.15% against a 7 bp fall in Europe’s benchmark German 2-year yields to 2.56%.

At the 10-year tenor the gap ​in favour of U.S. yields widened 20 bps in the same period to top 150 bps.

“We believe the move in ​rates and the dollar reflects expectations of cyclical and structural U.S. economic outperformance,” said Steve Englander, head of global G10 currency research at ‌Standard Chartered ⁠in New York.

“Strong productivity growth, partly AI-driven, should support higher earnings and lead to dollar-positive capital inflows,” he said.

US inflation measure awaited

The dollar made a seven-month high on sterling overnight at $1.314 and an 11-month top of 0.8139 Swiss francs .

Shaky equity markets have made for added punishment for the risk-sensitive Antipodeans and there was little respite for the Aussie and kiwi on ​Thursday, despite steadier stocks.

The Aussie , ​down more than 1.8% for ⁠the week so far, was under pressure at $0.6890 ahead of May jobs data, where some reversal of April’s weakness is expected.

The New Zealand dollar , down 1.7% this week, sat at $0.5640, ​just above Wednesday’s seven-month trough of $0.5631.

Later on Thursday, the Fed’s preferred inflation yardstick, core personal ​consumption expenditures, is ⁠due for May. A rise is expected though the outlook, since oil prices have tumbled back to pre-war levels, is for inflation to cool and overnight long-dated US Treasuries rallied sharply, lowering yields.

“Further USD gains will require further (widening) in rate differentials, but in ⁠the short ​term the corporates need dollars and will keep needing dollars for a ​few more days,” said Brent Donnelly, president at analytics firm Spectra Markets.

“My view is that this is creating a USD-positive feedback loop where (speculators) are adding ​and technicals are breaking, and that feedback loop will probably burn itself out soon.”