Safety Assurance Extends Ahead of the Dollar Rally

Safety Assurance Extends Ahead of the Dollar Rally

In Asia, on the first of the week, the dollar surged to its highest in a month as investors braced themselves for Federal Reserve’s step toward tapering expected this week, despite the potential disaster at indebted developer China Evergrande.

The euro sank 0.1 percent to $1.1710, which is its lowest level since August, as trade slowed down due to holidays in Japan, China, and South Korea.

The Australian dollar sank 0.5 percent to $0.7227, the lowest in three weeks, while the sterling and the New Zealand currency plummeted to multi-week lows as the greenback rose. The dollar index climbed 0.1 percent of 93.356, the highest since August 23.

Imre Speizer, an analyst at Westpac, said that the dollar is making a comeback. He cited support from expectations of a coming Fed asset purchase cutbacks and warning as the stock market sale picks up.

The yen stayed steady, rising 0.1 percent to 109.88/dollar, as stock markets fell amid fears that Evergrande’s failure might spark a wider crisis.

Evergrande (3333. HK), with a debt of $300 billion, has an $83.5 million bond interest payment due on Thursday. On Sunday, the firm started repaying some investors using real estate, causing other developers and lenders to sell. Without a rescue, there’s a risk that liquidation will reverberate across the real estate sector in China at a time when growth is already shaky.

The offshore Yuan dropped through its average of 200-days to a lowest three-week 6.4848 per dollar as onshore Chinese markets were closed for the mid-Autumn vacation. Sterling stood low 0.1 percent at $1.3709 at 0330 GMT, while the kiwi was down 0.14 percent at $0.7024. The dollar soared versus the developing market currencies as cryptocurrencies plummeted.

Focus on Fed

With a focus on Fed, a dozen central banks will meet this week, but the traders’ primary emphasis will be on the Federal Reserve, where hopes for a tapering signal keep the dollar bought.

On Wednesday, the Fed will wrap up a two-day meeting, with the expectation that it will adhere to its plans for working this year but deferring details and a timeframe of about a month.

However, rising US rates, which increased for the fourth week in a row last week, indicate the possibility of a hawkish surprise or a move in predictions to show rises as early as 2022, both of which may boost the dollar.

Like every other central bank, the Bank of England will keep the policy same, but traders expect the pound to rise if the bank adopts a hawkish tone or more members advocate for asset purchase reduction.

On Wednesday, the Bank of Japan will remain steadfastly dovish, while Norway’s Norges Bank will become the first G10 central bank to raise rates a day later.

On Monday, the Norwegian crown fell to a three-week low of 8.7499 per dollar as oil and the dollar rose.

Thomas Byrd

Thomas Byrd has worked as a freelance writer for some digital local publications. Recently he has joined FinanceStead as a chief news editor. He regularly contributes in weekly analysis of articles about market. In his free time, he likes to travel a lot and try different foods.

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