Daily Times

US jobs data reveal dollar hits 20-year high

With multi-decade highs against the euro and the yen on Friday ahead of U.S. labor data that could support rash rate hikes, the dollar is poised to post gains for a third straight week.

The dollar reached multi-year highs against the pound sterling and the New Zealand dollar as a result of a strong US manufacturing survey, which was enough to lift it above 140 for the first time since 1998.
The euro dropped below par against the strong dollar to $0.9967, not far from its 20-year low of $0.99005 last week. In Asian trading, the yen decreased to a new low of 140.4 yen.

Overnight, the dollar index reached a 20-year high of 109.99; it was last seen at 109.51. It is up more than 1% this week following remarks made by Federal Reserve Chairman Jerome Powell in Jackson Hole, Wyoming, that higher interest rates are necessary “for some time” to keep inflation in check.

Overnight, the pound lost 0.7%, and this week it has lost about 1.5%. He eventually reached $1.1551 overnight reaching $1.1499 earlier.

The Australian and New Zealand dollars both decreased by about 1% this week, reaching their lowest levels since May 2020 at $0.6789 for the Australian dollar and $0.6051 for the Kiwi.

Steve Englander, head of G10 foreign exchange research at Standard Chartered, said: “We thought the economic slowdown was enough to suspend rate hikes by the Fed until November, but Fed Chairman Powell has made it clear that tightening policy is the way to go. Agreed suggests that the hurdles for a moratorium are high.”

US jobs data reveal dollar hits 20-year high

“He believes the U.S. labor market needs to slow significantly to avoid a 75 basis point rise in interest rates,” he said. Non-farm wage data is due at 12:30 GMT, with economists expecting 300,000 jobs added in August, extending a strong data series. Inglander said it would take a surprise well below $275,000 to change the outlook for interest rates.

Fed funds futures priced in about a 75% chance that the Fed will raise interest rates by 75 basis points this month, with a week of heavy selling in the Treasury market and a 12 basis point drop in the 2-year yield. 10-year yields fell. Yields increased 23 basis points.

The 2-year yield hit a 15-year high of 3.551%, and the 10-year yield hit a 2.5-month high of 3.297%.

These moves have been especially supportive of the dollar’s march against the yen, as Japanese yields have been pegged at near zero. Chief Cabinet Secretary Hirokazu Matsuno said on Friday that the Japanese government is watching currency movements with a keen sense of urgency.

Elsewhere in Asia, the Chinese yuan is also under pressure at $6.907 and his new Covid-19 lockdown measures in Chengdu are weighing on investor sentiment.

Central bank meetings are scheduled in Europe and Australia next week, and the market expects rate hikes. Traders see about a 60% chance of a 50 basis point rate hike in Australia and about an 80% chance of a 75 basis point rate hike by the European Central Bank.