NEW YORK, June 14 — The safe-haven US dollar rose to a fresh two-decade high against a basket of currencies yesterday, supported by fears of a global economic slowdown and bets on steep interest rate hikes by the US Federal Reserve.
Global financial markets continued to smart from Friday’s hotter-than-expected US inflation data that led to a broad-based rise in risk aversion and fuelled bets on even more aggressive policy tightening.
Yesterday, government bonds sold off and stock markets around the globe took a beating.
“The USD extended its gains from Friday as risk continues to unwind across the board,” said Brad Bechtel, global head of FX at Jefferies said in a note.
The US Dollar Currency Index, which tracks its performance against six other major currencies, was up 0.6 per cent at 105.04, after scaling its highest since December 2002.
Traders have a lot on their plate this week, including policy meetings by the Fed, the Bank of England and the Swiss National Bank.
The US Federal Reserve is widely expected to raise its key interest rate by 50 basis points tomorrow, with some, including Barclays and Jefferies, expecting to the Fed to go for a 75 basis point move.
“A 75 bps (basis points) move is definitely going to be a surprise for some who are holding a hard line on 50 bps,” Bechtel said, adding he expects the dollar index to move higher on such a move.
The battered Japanese yen, floundering near lows against the dollar not seen since 1998, was one major currency that advanced against it yesterday.
The yen found some support from comments by Japan’s top government spokesperson that Tokyo is concerned about its sharp fall and stands ready to “respond appropriately” if needed.
“The increasingly strident tone from policymakers suggests they may escalate from verbal intervention soon,” Tom Learmouth, Japan economist at Capital Economics, said in a note.
“We don’t think that FX intervention would bring anything other than fleeting respite at potentially high cost,” Learmouth added.
Yesterday, the dollar was 0.1 per cent lower at ¥134.25.
The Australian dollar, seen as a liquid proxy for risk appetite, fell 1.7 per cent.
Sterling fell to a one month low against the dollar, coming under selling pressure after data showed Britain’s economy had unexpectedly shrunk in April. Tensions with the European Union over post-Brexit trade with Northern Ireland also weighed on the pound, which was down 1.4 per cent to US$1.2146 (RM5.37).
Bitcoin slumped 20.0 per cent to US$23,350.5, on pace for its worst day in more than two years, after major US cryptocurrency lending company Celsius Network froze withdrawals and transfers citing “extreme” conditions, in the latest sign of how financial market turbulence is causing distress in the cryptosphere. — Reuters
