NEW YORK :The dollar surged on Wednesday to a one-year high against major currencies, boosted by increased expectations for a reduction in the U.S. Federal Reserve's asset purchases starting in November and an interest rate hike, possibly in late 2022.
The greenback also fared well despite an impasse in Washington over the U.S. debt ceiling that threatened to plunge the government into a shutdown.
The world's largest reserve currency, seen as a safe-haven bet at times of market stress, has strengthened in recent days as investors instead focused on fears of a global slowdown, a rise in energy prices and higher U.S. Treasury yields.
Traders are also concerned that the Fed will start to withdraw policy support just as global growth slows.
"Fed has sounded the starting gun on monetary policy normalization," Kit Juckes, macro strategist at Societe Generale, wrote in his latest research note.
"As the U.S. escapes the interest rate zero-bound, leaving the Eurozone and Japan behind, the global savings glut is set to be drawn towards the dollar, which can outperform the majority of other currencies in the coming year, and may start its move earlier than we expected," Juckes added.
The dollar index - which measures the U.S. currency against a basket of six major currencies - rose for the fourth consecutive day, to 94.435, its highest since late September of last year. It was last up 0.7per cent at 94.404.
Erik Nelson, macro strategist at Wells Fargo in New York, sees a further 2per cent to 3per cent upside in the dollar index.
The greenback was also unfazed, even as U.S. Senate Republicans on Tuesday blocked a bid by President Joe Biden's fellow Democrats to head off a potentially crippling U.S. credit default, with federal funding due to expire on Thursday and borrowing authority on around Oct. 18.
The Senate could vote on Wednesday or Thursday on a bipartisan resolution to fund federal operations through early December, Senate Majority Leader Chuck Schumer said.
The euro was among the currencies to lose ground, falling below the US$1.16 level, the lowest since late July 2020. It last traded down 0.8per cent at US$1.1592.
The yen showed little reaction to the election of Fumio Kishida as leader of Japan's ruling Liberal Democratic Party, which put him on course to become the country's next prime minister.
The yen, the currency most sensitive to U.S. yields as higher rates can attract flows from Japan, touched an 18-month low against a resurgent dollar. The dollar climbed as high as 112.04, its strongest level since late February last year, and was last up 0.4per cent at 111.99 yen.
The dollar also rose to a more than five-month high of 0.9355 francs. It was last up 0.7per cent at 0.9351.
Currency traders also took note of comments from major central bankers on Wednesday, who were panelists at a European Central Bank forum in Sintra, Portugal.
Fed Chairman Jerome Powell, European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey said they were keeping a close eye on inflation amid a surge in energy prices and the persistence of production bottlenecks.
Currency bid prices at 4:06PM (2006 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 94.3940 93.7060 +0.74per cent 4.904per cent +94.4350 +93.6710
Euro/Dollar US$1.1593 US$1.1684 -0.77per cent -5.12per cent +US$1.1690 +US$1.1590
Dollar/Yen 111.9850 111.5150 +0.42per cent +8.38per cent +112.0450 +111.2100
Euro/Yen 129.83 130.25 -0.32per cent +2.29per cent +130.4700 +129.6800
Dollar/Swiss 0.9350 0.9293 +0.65per cent +5.73per cent +0.9355 +0.9281
Sterling/Dollar US$1.3419 US$1.3536 -0.88per cent -1.80per cent +US$1.3554 +US$1.3412
Dollar/Canadian 1.2756 1.2686 +0.56per cent +0.18per cent +1.2774 +1.2670
Aussie/Dollar US$0.7176 US$0.7240 -0.86per cent -6.69per cent +US$0.7264 +US$0.7171
Euro/Swiss 1.0839 1.0855 -0.15per cent +0.30per cent +1.0862 +1.0822
Euro/Sterling 0.8639 0.8629 +0.12per cent -3.33per cent +0.8658 +0.8613
NZ US$0.6862 US$0.6960 -1.39per cent -4.43per cent +US$0.6962 +US$0.6861
Dollar/Norway 8.7750 8.6605 +1.45per cent +2.32per cent +8.7880 +8.6460
Euro/Norway 10.1720 10.1219 +0.49per cent -2.81per cent +10.1851 +10.0980
Dollar/Sweden 8.8068 8.7334 +0.05per cent +7.45per cent +8.8122 +8.7233
Euro/Sweden 10.2104 10.2055 +0.05per cent +1.33per cent +10.2175 +10.1816
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting Iain Withers in London; Editing by Angus MacSwan, Kirsten Donovan, Philippa Fletcher, Will Dunham and Jonathan Oatis)