Investing.com – The US dollar rose in early European trade on Thursday on growing expectations of further rate hikes, with the Japanese yen taking a hit.
At 03:15 ET (07:15 GMT), the dollar index, which measures the greenback against a basket of six other currencies, was trading 0.4% higher at 109.040, not far from its highest level in two decades. At 109.48 at the start of the week.
The most important levels:
Expectations of a US rate hike at the Federal Reserve meeting later in September are rising on the back of strong economic data, as well as continued hawkish comments from Fed officials.
ADP’s employment statement on Wednesday showed a slowdown in the pace of US private sector hiring in August, but the 132,000 gain is still a good number. The previous JOLTS job report indicated continued strength in the labor market, putting Friday’s official jobs report in focus.
Expectations for another big hike have grown since Fed Chairman Jerome Powell announced last week that lowering price pressures toward the 2% target was the Fed’s “overarching focus.”
Policymakers also continued the topic, with Loretta Meester, president of the Federal Reserve Bank of Cleveland, saying on Wednesday that the central bank needed to raise the benchmark interest rate above 4% by early next year, from the current target range of 2.25%-2.5%, leaving it there for some. It is time to help cool inflation.
This drove up US Treasury yields, with the two-year yield peaking at 3.51%, its highest since late 2007.
By contrast, Japanese officials have made clear that interest rates are not going anywhere anytime soon. Spreads between Japan and the US sent the Japanese currency pair up 0.3% to 139.38, just below the 24-year high of 139.69 seen in early Asian trade.
The dollar against the euro
Elsewhere, the US currency pair fell 0.3% to 1.0023, suffering from dollar strength, but remained above parity as the European Central Bank is also widely expected to raise interest rates by 75 basis points next week after the price index rose Eurozone consumers rose to 9.1% in August.
“Gas prices and European sentiment are about to face a major stress test as the Nord Stream pipeline is shut down for maintenance,” analysts at ING said in a note. “All of this cautions against getting too excited about the recovery of European currencies at this point.”
The dollar against the sterling
Also, the US currency pair fell 0.3% to 1.1583, above a new 2 1/2 year low of 1.1569 as the UK economy heads towards what the Bank of England said is likely to be a long-term recession.
In addition, former BoE Deputy Governor Charlie Bean said on Wednesday that investors are beginning to see UK assets as riskier due to signals coming from potential new Prime Minister Liz Truss about plans to cut taxes and increase spending.
The dollar and the yuan
Currency pair against the US dollar rose 0.2% to 6.9015, influenced by a private survey that showed Chinese manufacturing activity contracted in August, a result similar to the government’s release on Wednesday.