Dollar Near One-Year High

The dollar stayed above a one-year high on Thursday against critical rivals. It followed a two-day rally fueled by expectations of a Federal Reserve tapering in November. Fears that the Fed might begin tightening in the face of a deteriorating global economy and persistently rising prices bolstered the safe-haven dollar. Despite a Washington standoff over the U.S. debt ceiling, it also did well, threatening to shut down the government. 

In a client note, Chris Weston, head of research at Melbourne brokerage Pepperstone, said, King USD is in the house: it doesn’t matter the currency. Buy USDs has been the vibe. We’re effectively seeing both the left and right sides of the USD “smile” theory working in earnest. According to the “smile” theory, the dollar performs well in either good or bad times for the U.S. economy, but not in the middle.

Fed Chair Jerome Powell, ECB President Christine Lagarde, said they were keeping a careful eye on inflation amid a jump in oil costs. They’re also focusing on the continuation of production bottlenecks at a European Central Bank forum on Wednesday. Meanwhile, Senate Republicans thwarted President Joe Biden’s Democrats’ attempt to avert a potentially debilitating U.S. credit default on Tuesday, with federal funding set to expire on Thursday and borrowing capacity set to expire around October 18.

Currency

Sterling rose 0.1 percent to $1.34355. However, it stayed close to a nine-month low of $1.3412 hit overnight due to fears about increasing natural gas prices and nearly a week of petrol shortages in the United Kingdom.

The risk-sensitive Australian dollar recovered 0.15 percent to $0.71855. This came after it hit a low of $0.71705 on Wednesday, its lowest level since August 23. After reaching 112.05 overnight, the dollar bought 111.86 yen, dropping marginally after touching a high not seen since February 2020.

The euro remained unchanged at $1.1602, close to its 14-month bottom of $1.15895 set on Wednesday.

The dollar index compares the currency to a basket of six rivals. On Thursday it remained constant at 94.336, after reaching 94.435 for the first time since late September last year.