Dollar climbs as case for U.S. rate hikes firms

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SYDNEY — The dollar started the week

firmly on Monday, with a strong U.S. labor market reinforcing

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bets on higher interest rates as traders braced for data

expected to show stubbornly high inflation.

U.S. unemployment unexpectedly fell last month, Friday

figures showed, and inflation data due on Thursday is forecast

to show headline inflation at a hot 8.1% year-on-year.

Policymakers’ preferred core inflation is seen rising to 6.5%.

Westpac strategist Sean Callow said the data and rising

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yields in response was a “robust combination for the dollar.”

“It’s further evidence that the U.S. economy is not

cratering,” he said. “It just feeds into the notion that the Fed

is going to spend the next three weeks saying the same thing

about interest rates.”

Climbing oil prices and geopolitical tension also provided

plenty of reasons for nervousness about growth, weighing on

energy-importer currencies in Europe and even on exporters such

as the growth-sensitive Australian dollar.

The Aussie fell 0.3% to a 2-1/2 year low of $0.6347

in early trade in Asia that was thinned by a holiday in Japan.

Sterling fell 0.2% to $1.1071, while the yen was

drifting into a zone on the weaker side of 145 per dollar that

prompted authorities’ intervention to support it last month.

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The yen was last at 145.37 per dollar. The New

Zealand dollar touched a two-week low of $0.5593.

Futures pricing suggests traders see a nearly 90% chance of

a 75 basis point rate hike in the United States next month and

more than 150 bps of tightening by May. Ten-year

Treasury yields rose for a tenth straight week last week.

Benchmark Brent crude futures jumped more than 11%

last week after the Saudi-led production cartel agreed to cut

supply, while intensifying war in Ukraine is also a threat to

Europe’s energy security as winter approaches.

The euro fell below $0.98 on Friday and was last

at $0.9733. The U.S. dollar index was steady at 112.83,

off lows around 110 last week and creeping back toward last

month’s 20-year high of 114.78.

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Markets were waiting to see how the Kremlin might respond to

a blast that hit Russia’s only bridge to Crimea. Nuclear-armed

North Korea made a seventh recent missile test over the weekend.

Chinese markets reopen after a week-long holiday, and ahead

of that the offshore yuan was steady at 7.1310 per

dollar. The Communist Party’s 20th National Congress opens on

Sunday and is expected to reaffirm Xi Jinping’s leadership.

Services activity in China shrank for the first time since

May in September, disappointing expectations.

“The yuan will likely trade between 7.0 and 7.2 in the near

term,” said Scotiabank strategist Qi Gao.

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Currency bid prices at 2304 GMT

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Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$0.9733 $0.9732 -0.02% -14.41% +0.9739 +0.9728

Dollar/Yen

145.3800 145.2700 +0.12% +0.00% +145.4150 +145.4400

Euro/Yen 141.50 141.62 -0.08% +0.00% +141.5700 +141.4700

Dollar/Swiss

0.9948 0.9949 +0.01% +9.08% +0.9949 +0.9950

Sterling/Dollar

1.1073 1.1093 -0.19% -18.13% +1.1095 +1.1065

Dollar/Canadian

1.3742 1.3739 +0.02% +8.69% +1.3754 +1.3725

Aussie/Dollar

0.6352 0.6366 -0.22% -12.62% +0.6375 +0.6343

NZ

Dollar/Dollar 0.5597 0.5594 +0.06% -18.23% +0.5606 +0.5593

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook. Editing by Sam Holmes.)