Broader concerns about the Chinese asset sector and firm U.S. Treasury yields have encouraged the dollar to extend its long positions, adding consolidated gains against its rivals on Monday.
After spending the second quarter of 2021 on the backfoot, the dollar has received a fresh boost in recent weeks, climbing past its rivals last week to its highest level in a year as top investment banks revised their forecasts.
With every other major currency weakening against the greenback last week, traders are now keeping a close eye on US jobs data for September to decide whether the Fed will press the button on its decision to reduce its bond purchases.
“The dollar’s recent gains boil down to three sources: bets that the Fed will launch its rate hike campaign next year, investors seeking shelter from the equity market storm, and anticipation that the US economy will be hit hard by the global electricity crisis. is well protected,” he said. Marios Hadjikiriakos, strategist at brokerage XM.
Citigroup strategists expect the dollar to rise further due to challenges in the Chinese real estate sector, higher US yields not driven by the global economic recovery, and negative implications for energy importers.
Shares of troubled developer China Evergrande were halted in Hong Kong, rekindling market nerves about the possibility of infection.
A bullish dollar is also supported by Kit Jux, a strategist at Societe Generale, who is bearish on the euro.
The dollar’s gains were more pronounced against some of its top rivals, with the greenback hitting a 14-month high on the euro and a 19-month peak against the yen last week as markets pushed US interest rates ahead of global peers.
In London trading on Monday, the euro fell below $1.16 and is not far from last week’s trough of $1.1563 at $1.1598.
Versus a basket of its rivals, the dollar was steady at 93.96 after rising for four consecutive weeks, its biggest increase since the end of June, according to Refinitiv data.
The latest weekly positioning data shows hedge funds increasing their dollar holdings relative to their rivals to their highest level since November 2019.
The dollar’s gains also hammered life in morbid currency volatility markets, with a gauge measuring daily swings rising to its highest level in 2-1/2 months at 6.2 percent.
With Chinese markets closing for a holiday, traders will focus on monthly US jobs data on Friday, which analysts believe will pave the way for US policymakers to strike a more furious tone . The yield on the benchmark 10-year US Treasury loan was close to its highest level in more than three months at 1.47 per cent.
Friday’s US labor data is expected to show continued improvement in the job market, along with a forecast for 460,000 jobs in September, enough to keep the Federal Reserve on course to begin tapering before the end of the year.
“Markets think that if US employment data remains strong in the coming months, Fed rate hikes may not be far behind the end of the tapering in 2022,” Credit Suisse strategists said in a quarterly outlook note.
Graphic: USD Position:
by Saikat Chatterjee
This News Originally From – The Epoch Times