Dollar Rises Amidst Inflation Focus, Haven Demand

(RTTNews) - The U.S. Dollar rallied further during the week ended October 9 as markets digested the hawkish minutes from the recent FOMC that revealed a Fed focused on inflation combat.

The safe haven demand triggered by the renewed hostilities in the Middle East also swayed market sentiment. Concerns about the fiscal situation in France dragged down the euro, resulting in a surge in the Dollar Index. The selloff in bond markets attributed to renewed fears about the burgeoning global debt and a worrying fiscal position also strengthened the U.S. dollar.

During the past week, the U.S. dollar inter alia rallied against the euro, the British pound, the Japanese yen, the Swiss franc as well the Canadian dollar. The greenback however slipped against the Australian dollar and Swedish krona. The 6-currency Dollar Index added more than a quarter percent over the course of the week. Here is a quick recap of the dollar's trajectory during the week ended October 9.

During the week, which witnessed renewed geopolitical tensions in the Middle East, massive turbulence in bond markets as well as the release of FOMC minutes from the U.S., the U.S. dollar recorded mild gains. The Dollar Index, a measure of the Dollar's strength against a basket of 6 currencies ranged between the high of 102.54 recorded on Monday and the low of 101.75 recorded on Tuesday.

Minutes released on Wednesday revealed the FOMC's concerns about elevated inflation. Though expectations of an immediate rate hike by the FOMC remain low, markets anticipate a rate hike in December. Amidst the rate cues from the Federal Reserve as well as the war cries from the Middle East, the Dollar Index added 0.27 percent during the week ended October 9. The index, which had closed at 101.93 on October 2 finished trading at 102.21 a week later.

The EUR/USD pair dropped 0.46 percent in the past week marked by concerns about France's fiscal position, release of minutes from the European Central Bank's meeting as well as tensions in the Middle East. The minutes confirmed that the decision to raise rates was basically driven by a deteriorating inflation outlook. During the week ended October 9, the EUR/USD pair dropped to 1.1202, from 1.1254 a week earlier. The pair ranged between a weekly low of $1.1161 recorded on Monday and a weekly high of $1.1277, recorded on Tuesday.

The week ended October 9 also witnessed the pound edging down 0.06 percent against the dollar. The sterling, which had closed at $1.3243 on October 2 decreased to $1.3235 by October 9. Hawkish remarks from Bank of England policymakers capped the sterling's losses amidst a resilient dollar. The GBP/USD pair traded between a high of 1.3287 recorded on Tuesday and a low of 1.3183, recorded on Thursday.

The risk-sensitive Aussie however rallied close to a half a percent against the U.S. Dollar during the week ended October 9. The gain for the AUD/USD pair during the week was 0.43 percent, from 0.6955 on October 2 to 0.6985 on October 9. The pair traded between the week's low of 0.6931 recorded on Monday and the week's high of 0.6990 recorded on Tuesday.

The Japanese yen also declined 0.30 percent against the U.S. dollar during the week ended October 9 amidst comments from Bank of Japan's Governor that were perceived as less hawkish than what the markets had anticipated. The USD/JPY pair which had closed at 157.86 on October 2, increased to 158.34 in a week's time. During the week, the pair ranged between the week's low of 157.43 touched on Monday and 158.51 recorded on Wednesday.

With the Federal Reserve focused on fighting inflation, sentiment in the currency market remains tethered to the anxiety ahead of the release of the inflation readings from the U.S. due later in the week. Amidst escalating tensions in the Middle East, the six-currency Dollar Index on Monday touched 102.46, the highest in a year and a half. It is currently trading at 102.44, versus 102.21 at close on Friday implying gains of 0.22 percent.

The EUR/USD pair has dropped to 1.1172, declining 0.27 percent from 1.1202 at close on Friday as investors weighed France's record high debt as well as the political challenges to implementing budget cuts and reducing fiscal deficit. The GBP/USD pair has also declined to 1.3224 from 1.3235 at the end of the previous week. The AUD/USD pair which was at 0.6985 at close on Friday has slipped to 0.6966. The USD/JPY pair has rallied, rising to 158.66 from 158.34 at close on Friday.