The U.S. dollar continued its rally on Wednesday, causing the Australian dollar to lose its gains after stronger-than-expected inflation data raised expectations of interest rate hikes. The Canadian currency is also being closely watched, as the U.S. dollar reached a six-month peak against the Loonie ahead of a meeting by the Bank of Canada. The dollar index, which measures the dollar against a basket of six currencies, rose 0.2% to 106.42, after S&P Global’s U.S. Composite Purchasing Managers Index reached its highest level since July. This could potentially allow the U.S. Federal Reserve to maintain high interest rates. In contrast, weak European PMI data was released on the same day, although a survey revealed that morale among German businesses slightly improved in October.
Both the euro and the pound experienced declines, with the euro down 0.1% at $1.0577 and the pound down 0.22% at $1.2133. The Australian dollar saw significant movement, initially gaining 0.7% to touch a two-week high of $0.6400 after Australia’s consumer price index rose 1.2% in the third quarter, surpassing market forecasts. Traders then decreased the odds of a rate increase by the Reserve Bank of Australia (RBA) next month, as the gains were not sustained and the Australian dollar fell by 0.2% to $0.634.
Jane Foley, head of FX strategy at Rabobank, highlighted concerns about inflation in Australia, stating that the country, like many others, had paused their interest rates in the hopes that inflation would remain under control. However, tight labor markets and high oil prices have raised fears that inflation could become problematic. As for the Japanese yen, it remained near the closely watched 150 threshold, with the Japanese currency standing at 149.92 per dollar. Market observers are watchful for any signs of intervention by Japanese authorities, as pressure mounts on the Bank of Japan to make changes to its bond yield control due to rising global interest rates.
The possibility of a hike to the existing yield cap, which was set three months ago, will be discussed at next week’s policy meeting. If the cap is not adjusted, there is a chance that the yen may weaken beyond 150. Market participants are concerned that Japanese authorities may step in to bolster the currency. In the cryptocurrency market, Bitcoin maintained its upward trend, reaching $34,247, near an 18-month high achieved on Tuesday. The surge in Bitcoin’s value has been fueled by speculation that an exchange-traded bitcoin fund is on the horizon.
Overall, the U.S. dollar’s rally and strong economic data have impacted other currencies, with the Australian dollar experiencing volatility due to inflation concerns and the Japanese yen remaining under pressure. The cryptocurrency market, particularly Bitcoin, continues to attract attention and achieve new highs.
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