Dollar Surged Last Week Amid Yield Spike Eclipsing Weak Data

The U.S. Dollar extended gains against major currencies during the week ended October 2 as yields on long-dated U.S. treasuries jumped to multi-decade highs. Though softer-than-expected PCE inflation readings as well as a disappointing job market update toned down rate hike expectations from the Federal Reserve, the dollar closed the week’s trading on a strong positive note.

Past week, the U.S. dollar inter alia rallied against the euro, the British pound, the Australian dollar, the Japanese yen, the Swedish krona, the Canadian dollar and the Swiss franc. The 6-currency Dollar Index jumped almost a percent over the course of the week. Here is a quick recap of the dollar’s trajectory during the week ended October 2.

In the week, which witnessed a relentless rout in the U.S. Treasury bond market as well as key U.S. economic data releases, the U.S. dollar recorded strong gains. A ballooning fiscal debt, massive debt issuance by corporates to fund AI infrastructure as well as worries about fuel-led inflation pushed yields higher.

The Dollar Index, a measure of the U.S. dollar’s strength against a basket of 6 currencies, climbed from the low of 100.98 recorded on Monday to a high of 102.21 on Thursday.

The JOLTs report released on Tuesday showed job openings declining to 7.08 million in August from a revised 7.34 million in the previous month and market expectations of 7.23 million.

Data released on Wednesday showed annual PCE Price index remaining steady at 3.4 percent as compared with market expectations of a rise to 3.7 percent. The core component thereof which was expected to rise to 3.3 percent unexpectedly remained steady at 3 percent. Month-on-month PCE price index rose 0.3 percent as compared with the revised reading of 0.1 percent. Markets had anticipated a level of 0.4 percent. The core component thereof which was seen rising to 0.3 percent recorded 0.2 percent versus the revised reading of 0.1 percent in the previous month.

Data released on Thursday showed the ISM Manufacturing PMI unexpectedly declining to 54.5 in September from 54.6 in August and an expected level of 55.

The monthly additions to non-farm payrolls in September, according to the U.S. Bureau of Labor Statistics’ release on Friday stood at 29 thousand, much lower than 90 thousand that the markets had expected and the previous month’s revised reading of 133 thousand. The unemployment rate which was expected to remain steady at 4.1 percent also unexpectedly increased to 4.2 percent.

Dovish comments from the President of the Federal Reserve Bank of New York on Tuesday also supported a downward repricing of rate hike expectations. His comments that there was no need to rush with another rate increase quelled rate hike projections significantly. Though the Fed commentary and data releases cast doubts on the likelihood of another rate hike by the Federal Reserve, the sell-off in bond markets reinforced hawkish perceptions.

Amidst the developments, the Dollar Index, which had closed at 100.97 on September 25 finished trading at 101.93 a week later. The index added 0.95 percent during the week ended October 2.

With the EUR/USD pair plunging 1.2 percent in the past week, the dollar recorded its fourth straight weekly gain against the euro. During the week ended October 2, the EUR/USD pair dropped to 1.1254 from 1.1391 a week earlier. The pair ranged between a weekly high of $1.1392 recorded on Monday and a weekly low of $1.1215, recorded on Thursday. Data released during the week had showed flash inflation readings for September recording 3.8 percent, surpassing previous reading of 3.2 percent and consensus estimates of 3.6 percent.

The week ended October 2 also witnessed the pound edging down 0.08 percent against the dollar. The sterling, which had closed at $1.3253 on September 25 declined to $1.3243 by October 2. The sterling remained supported by the dollar’s weakness as well as the possibility of further rate hikes by the Bank of England. The GBP/USD pair traded between a high of 1.3313 recorded on Wednesday and a low of 1.3180, recorded on Thursday.

Amidst the U.S. dollar’s resilience, the risk-sensitive Aussie also plummeted against the U.S. Dollar during the week ended October 2. The slippage for the AUD/USD pair during the week was 0.98 percent, from 0.7024 on September 25 to 0.6955 on October 2. The pair traded between the week’s high of 0.7041 recorded on Monday and the week’s low of 0.6904 recorded on Thursday. The week witnessed Reserve Bank of Australia increasing rates by a quarter percent to 4.6 percent, matching market expectations.

The Japanese yen also plunged 0.37 percent against the U.S. dollar during the week ended October 2. The USD/JPY pair which had closed at 157.28 on September 25, increased to 157.86 in a week’s time. During the week, the pair ranged between the week’s low of 156.37 touched on Wednesday and the week’s high of 158.46 recorded on Thursday. Data released during the week showed a less-than-expected increase in the Tankan Large Manufacturers Index. Friday’s data showing a larger-than-expected level of Tokyo Core CPI lifted odds of a rate hike by Bank of Japan, limiting the yen’s weekly losses.

Currency market sentiment in favor of the U.S. dollar has increased further on Monday. Anxiety ahead of the release of the FOMC minutes on Wednesday also boosted the greenback. The six-currency Dollar Index touched a high of 102.54 earlier in the trade. It has since eased to 102.25 versus the close of 101.93 on Friday, implying overnight gains of 0.31 percent. The index was also lifted by the weakness in the euro which has a weight of 57.6 percent in the Dollar Index.

Amidst latest political developments in France and Spain that renewed concerns about fiscal position and political uncertainty in the euro area, the common currency has plummeted to a 17-month low against the greenback. The EUR/USD pair has dropped 0.42 percent to 1.1205 from 1.1254 at close on Friday.

The GBP/USD pair has also declined 0.11 percent to 1.3226 from 1.3243 at the end of the previous week. The AUD/USD pair which was at 0.6955 at close on Friday has however edged up 0.6959. The USD/JPY pair has gained, up 0.23 percent to 158.23 from 157.86 at close on Friday.

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