Dollar Near Year High Against Euro as US Growth and Interest Rate Expectations Drive Monthly Gains

The US dollar approached its highest level of the year against the euro on Wednesday, set for its largest monthly gain in 14 months. Rising US interest rates, strong economic growth, and concerns over European energy supplies and French debt have driven the divergence. New York Fed President John Williams tempered rate hike expectations by stating there is no urgency in raising rates, causing Treasury yields and rate hike probabilities to ease. The Australian dollar slipped below 70 cents, and sterling touched a three-month low, while the yuan neared a seventh straight quarterly gain ahead of China's national holidays.

By Wednesday, the dollar had climbed to near its annual peak against the euro and was heading toward its largest monthly advance against the shared currency in more than a year, buoyed by steady economic growth and elevated borrowing costs in the United States at a time when Europe contended with pressures over energy availability and government debt. A strengthening US dollar pushed the Australian dollar below the 70-cent mark for the first time since early August, dragging the local currency to a nine-week low of $0.6959 after inflation data came in slightly under forecasts; Brent Donnelly, president of foreign exchange trading at analytics firm Spectra Markets, pointed to robust performance in the US economy, Europe's lag in the global artificial intelligence race, and ongoing pressures from energy supply constraints and political developments in France as factors weighing on the euro. France's sovereign bond market is under pressure from high debt loads and parliamentary gridlock, with the spread over German bonds having widened to more than 115 basis points — its largest gap since 2012 — as the country heads into a presidential election period. The yen has become a less attractive currency to bet against the dollar following intervention by Japanese authorities to buy yen during July and August, a period in which officials also put traders on notice that they would defend their position, while domestic borrowing costs were raised at a faster pace. Wednesday will also see the publication of the Federal Reserve's preferred inflation gauge, the core PCE index, though market participants appear more focused on Friday's jobs data, where a stronger-than-anticipated result could reinforce the case for additional interest rate rises.

Dollar Near Year High Against Euro as US Growth and Interest Rate Expectations Drive Monthly Gains

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Dollar Near Year High Against Euro as US Growth and Interest Rate Expectations Drive Monthly Gains

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