Dollar near 1-year high as Fed tightening in focus, Aussie climbs

U.S. dollar banknotes are seen in this photo illustration
U.S. dollar banknotes are seen in this photo illustration taken February 12, 2018. REUTERS/Jose Luis Gonzalez/Illustration/File Photo
  • Yen set for worst month since March
  • Yuan poised for monthly drop
  • China markets shut from Friday for a week

TOKYO, Sept 30 (Reuters) - The greenback hovered near a one-year high versus major peers on Thursday as expectations mounted that the Federal Reserve will taper stimulus from November, while the commodity-linked Aussie dollar benefited from a bounce in iron ore prices.

The safe-haven dollar has made sharp gains over the last two sessions on concern the Fed could withdraw economic support as global growth slows and high inflation is high. Spiking bond yields added to the currency's firmness.

Its rise is despite an impasse in Washington over the U.S. debt ceiling that threatens to plunge the government into a shutdown.

The dollar index - which measures the currency against a basket of six rivals - stood at 94.327, little changed from Wednesday, when it hit 94.435 for the first time since late September last year.

Yields on the benchmark 10-year Treasury note stood at 1.5341%, holding near a mid-June high reached Tuesday at 1.5670%.

"A combination of higher U.S. yields, impending Fed tapering and skittish markets around the debt ceiling have fuelled this move (in the dollar)," Westpac analysts wrote in a client note.

The issue of whether to raise or suspend the debt ceiling would probably extend to mid-October, beyond which, the dollar will likely be supported by money markets pricing in rate hikes, they added.

The dollar bought 111.97 yen , little changed from Wednesday, when it reached 112.05 for the first time since February 2020. It was on track for its worst monthly performance since March.

The euro was mostly flat at $1.15995, holding near Wednesday's 14-month low of $1.15895

Speaking at a European Central Bank forum on Wednesday, Fed Chair Jerome Powell, ECB President Christine Lagarde and Bank of England Governor Andrew Bailey said they were monitoring inflation after a surge in energy prices and production bottlenecks. read more

The risk-sensitive Australian dollar firmed 0.5% to $0.7206, after plummeting 0.9% overnight, as iron ore prices rallied ahead of the Golden Week holiday in Australia's top trading destination China.

A rebound in monthly Chinese services data also "looks to have gone some way to allaying fears that the evident slowdown in China growth of late is accelerating to the downside," buoying the Aussie, said Ray Attrill, NAB's head of FX strategy.

Sterling edged up 0.1% to $1.34357 but remained near the nine-month low of $1.3412 reached overnight on concerns about soaring natural gas prices and almost a week of petrol shortages in Britain.

A slight improvement in overall risk sentiment after days of gloom was seen in the cryptocurrency markets, as bitcoin rose 5% to $43,567 and ether bounced 6.4% to $3,034.09.

Both coins are down between 20%-27% from their September peaks.


Currency bid prices at 0609 GMT

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Reporting by Kevin Buckland; Editing by Sam Holmes and Barbara Lewis

Our Standards: The Thomson Reuters Trust Principles.