Dollar Up, Investors Ramp Up Bets on Earlier-Than-Expected Fed Interest Rate Hike

The dollar was up on Wednesday morning in Asia, remaining near a 16-month peak. Investors also digested the latest U.S. economic data and raised bets for an earlier-than-expected interest rate hike from the U.S. Federal Reserve.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged up 0.14% to 96.043 by 23:20 PM ET (4:20 AM GMT). The index remained near an overnight high of 95.978, a level not seen since July 2020.

The USD/JPY pair inched up 0.04% to 114.87.

The AUD/USD pair was down 0.33% to 0.7278. Australia released wage data earlier in the day, with the wage price index growing 2.2% and 0.6% year-on-year and month-on-month respectively in the third quarter. Reserve Bank of Australia governor Philip Lowe again pushed back against market pricing for a rate hike in 2022, with recent data not justifying the move.

The NZD/USD pair inched down 0.03% to 0.6989.

The USD/CNY pair inched down 0.05% to 6.3886 and the GBP/USD pair inched down 0.07% to 1.3418.

U.S. data released on Tuesday showed that core retail sales grew by a better-than-expected 1.7% month-on-month in October. Retail sales also grew a better-than-expected 1.7%. However, St. Louis Fed president James Bullard said on Tuesday that the Fed should “tack in a more hawkish direction” in preparation for longer-term high inflation.

“The U.S. economy looks to have shaken off the COVID-19 Delta variant soft patch and is regaining forward momentum, albeit with heavy ongoing supply chain issues and reopening bottleneck,” Westpac analysts said in a note, recommending buying the dollar index on any dips into the low 95 level.

“Hawkish comments from Bullard, who is a voter in 2022, will leave markets comfortable pricing in Fed hikes in that year, a stark contrast with Europe where renewed COVID-19 suppression measures are being implemented.”

Across the Atlantic, rising numbers of COVID-19 cases in Europe triggered worries about the continent’s economic recovery from COVID-19. Germany will vote on Thursday on stricter measures to curb its outbreak after Austria imposed a lockdown on unvaccinated people earlier in the week.

European Central Bank (ECB) President Christine Lagarde will speak later in the day, with ECB board member Isabel Schnabel also speaking at a separate event.

Elsewhere in Europe, the U.K. releases its consumer price index later in the day, which could provide further support to the Bank of England tightening its monetary policy.


Other news