Dollar Keeps Rising Amidst Bond Selloff, Rate Hike Worries

(RTTNews) - The U.S. Dollar extended gains during the week ended September 25 as strong economic data from the U.S. and the spike in global crude oil prices renewed Fed rate hike fears and triggered a selloff in U.S. bond markets.

During the 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 close to a percent over the course of the week.

Here is a quick recap of the dollar's trajectory during the week ended September 25.

Data released on Wednesday showed an unexpected jump in manufacturing as well as service sector activity in the U.S. Flash S&P Global PMI readings for September showed manufacturing PMI jumping to 57 from 53.9. Markets had expected it to edge down to 53.6. The Services PMI which was expected to decline to 56 from 56.5 also jumped to 58.7. The hot PMI data caused bond yields and Fed rate hike expectations to rise significantly.

Long dated thirty-year bonds which had closed at 5.327 percent on September 18 climbed steadily to close at 5.502 percent on September 25. Yields on ten-year as well as shorter tenors also spiked during the week in the wake of renewed Fed rate hike expectations. The likelihood of another quarter percentage rate hike by the Federal Reserve in October increased to 64.2 percent on Friday from 57.6 percent on Monday.

During the week, the Dollar Index (DXY), a measure of the Dollar's strength against a basket of 6 currencies climbed from the low of 100.18 recorded on Monday to a near two-month high of 101.40 recorded on Thursday. The yen's rebound on Friday amidst reports that President Trump expressed concerns about its weakness, limited the greenback's weekly gains. The Dollar Index which had closed at 100.22 on September 18, finished trading at 100.97 a week later. The index added 0.75 percent during the week ended September 25.

As Fed rate hike fears boosted the greenback, the EUR/USD pair plunged 0.81 percent in a week. By the end of the week on September 25, the EUR/USD pair dropped to 1.1391, from 1.1484 a week earlier. The pair ranged between a weekly high of 1.1496 recorded on Monday and a weekly low of 1.1359, recorded on Thursday.

The week ended September 25 also witnessed the pound dropping more than a percent against the dollar amidst renewed Fed rate hike expectations. The sterling, which had closed at $1.3395 on September 18 declined to $1.3253 by September 25. The GBP/USD pair traded between a high of 1.3403 touched on Monday and a low of 1.3203, recorded on Thursday.

Amidst the Dollar's resurgence, the Aussie plunged 1.33 percent against the U.S. Dollar during the week ended September 25. The AUD/USD slipped from 0.7119 on September 18 to 0.7024 on September 25. The pair had traded between the week's high of 0.7142 recorded on Monday and the week's low of 0.7003 recorded on Friday.

The Japanese yen also dropped 0.25 percent against the U.S. dollar during the week ended September 25. The yen weakened as markets perceived Bank of Japan's recent interest rate hike as not aggressive enough. The USD/JPY pair which had closed at 156.89 on September 18, rose to 157.28 in a week's time. During the week, the pair ranged between 156.57 touched on Monday and 159.05 recorded on Thursday.

Sentiment towards the U.S. dollar in the currency market has firmed up mildly on Monday amidst the U.S.-Iran impasse lifting crude oil prices more than 3 percent. The Dollar Index has gained on Monday, trading between 100.98 and 101.20. The index is currently trading 0.18 percent higher at 101.15 versus 100.97 at close on Friday. Updates to key economic data including Job Openings, PCE-based inflation, GDP, ISM manufacturing PMI, Non-farm payrolls as well as unemployment position are due from the U.S during the week.

Meanwhile, data from the CME FedWatch tool that tracks the expectations of interest rate traders, shows the likelihood of a quarter-percentage Fed rate hike in October increasing to 70.3 percent from 64.2 percent on Friday.

Ahead of Friday's inflation update, the EUR/USD pair has weakened 0.15 percent to 1.1374 on Monday from 1.1391 at close on Friday. The GBP/USD pair has gained 0.10 percent to 1.3259 from 1.3253 at the end of the previous week. Ahead of Reserve Bank of Australia's monetary policy meeting and widely expected interest rate hike, the AUD/USD pair has decreased to 0.7010 from 0.7024 at close on Friday.

The USD/JPY pair has lost 0.11 percent, declining to 157.11 from 157.28 at close on Friday while markets wait for the latest Tankan Large Manufacturers Index data on Wednesday.