The dollar is advancing to its highest level of a year; The impact of the US debt ceiling is mitigated

NEW YORK, Sept. 29 (Reuters) – The dollar jumped to a year-long high against major currencies on Wednesday, boosted by heightened expectations of a reduction in U.S. Federal Reserve asset purchases from November and a rise in interest rates, possibly at the end of 2022.

The greenback also performed well despite a deadlock in Washington on the US debt ceiling that threatened to plunge the government into a shutdown.

The world’s largest reserve currency, seen as a safe haven in times of market stress, has strengthened in recent days as investors focus instead on fears of a global slowdown, rising prices energy and higher US Treasury yields. Read more

Traders are also concerned that the Fed may start to withdraw political support just as global growth slows.

“The Fed has signaled the start of the normalization of monetary policy,” wrote Kit Juckes, macro-strategist at Societe Generale, in his latest research note.

“As the United States escapes the zero interest rate, leaving the eurozone and Japan behind, the global savings glut is likely to be drawn to the dollar, which may outperform most other currencies over time. year to come, and could start its move sooner than expected, ”Juckes added.

The dollar index – which measures the US currency against a basket of six major currencies – rose for the fourth day in a row, to 94.435, its highest since late September last year. It was up 0.7% to 94.404.

Erik Nelson, macro strategist at Wells Fargo in New York, sees a further 2-3% rise in the dollar index.

The greenback was also unfazed, even as Republicans in the U.S. Senate on Tuesday blocked an offer from fellow Democrats under President Joe Biden to avoid a potentially crippling credit default in the United States, with federal funding set to expire on Thursday and power to ‘loan around October 18. read more

The Senate could vote Wednesday or Thursday on a bipartisan resolution to fund federal operations until early December, Senate Majority Leader Chuck Schumer said. Read more

The euro was one of the currencies to lose ground, falling below the level of $ 1.16, the lowest since the end of July 2020. It traded for the last time down 0.8% at $ 1.1592.

The yen reacted little to the election of Fumio Kishida as head of the ruling Liberal Democratic Party in Japan, which saw him become the country’s next prime minister. Read more

The yen, the currency most sensitive to US yields because higher rates can attract inflows from Japan, hit an 18-month low against a resurgent dollar. The dollar climbed to 112.04, its highest level since late February last year, and rose 0.4% to 111.99 yen.

The dollar also hit a high for more than five months at 0.9355 francs. It was up 0.7% to 0.9351.

Currency traders also took note on Wednesday of comments from leading central bankers, who were panelists at a European Central Bank forum in Sintra, Portugal.

Fed Chairman Jerome Powell, European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey have said they are keeping a close watch on inflation amid soaring prices of the energy and persistent production bottlenecks. Read more

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Currency bid prices at 4:06 p.m. (2006 GMT)

Reporting by Gertrude Chavez-Dreyfuss; Additional reporting Iain Withers in London; Editing by Angus MacSwan, Kirsten Donovan, Philippa Fletcher, Will Dunham and Jonathan Oatis

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