The dollar strengthened on Tuesday, September 15th, as rising oil prices pushed US Treasury yields to their highest level in nearly two decades, with markets increasingly confident that the Federal Reserve will raise interest rates on Wednesday.
The dollar strengthened against major currencies on Tuesday as surging oil prices lifted US Treasury yields and reinforced expectations that the Federal Reserve will raise interest rates this week.
The US 10-year Treasury yield climbed to 5.0266%, its highest level since 2007, before easing to just below five per cent as investors prepared for what could be the first in a series of rate increases by the Federal Reserve to tackle persistent inflation.
Oil prices remained above $105 a barrel, close to a four-month high, after Yemen’s Iran-aligned Houthis launched fresh attacks on Saudi Arabia and talks between Iran and Gulf states were postponed.
Markets are pricing in more than a 92 per cent probability of a Fed rate increase on Wednesday, according to CME’s FedWatch tool.
The dollar index, which measures the currency against six major peers, rose 0.1 per cent to 99.596, close to its highest level in about two weeks. The currency also benefited from weaker appetite for risk as global stock markets fell.
The euro was little changed at $1.1551, remaining close to the one-month low of $1.1523 reached in the previous session.
Sterling fell 0.03 per cent to $1.3494 ahead of the Bank of England’s interest rate decision on Thursday. Markets are widely expecting the British central bank to hold rates, although traders anticipate further increases before the end of the year, according to LSEG data.
Data released on Tuesday showed continued weakness in the UK labour market, with vacancies falling to a four-year low while pay growth remained steady.
The dollar gained 0.4 per cent against the yen, which moved further away from a seven-month high reached a week earlier. The yen briefly weakened beyond 155 per dollar.
The latest inflation concerns in the United States followed stronger-than-expected employment data and an increase in consumer prices in August, strengthening expectations of a rate increase on Wednesday.
According to Reuters, economists expect at least one further rate increase by the end of March, reversing an earlier expectation that the Federal Reserve would leave rates unchanged after official data showed persistent inflation.
“If the Fed is viewed as beginning a new hiking cycle rather than calibrating monetary policy, monetary policy could have spillovers to risk assets,” Gabriele Foà, a portfolio manager at Algebris Investments, said in a note.
Meanwhile, bitcoin fell 4 per cent to $7,997.
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