IGI Logo

SINGAPORE - The U.S. dollar found a footing on Monday as soft economic data in China and climbing oil prices jangled investors' nerves that inflation will drive interest rates higher.

In the Asia session the greenback climbed a touch along with U.S. yields to arrest a dip it suffered last week. It rose about 0.2% against the euro and about 0.1% against the yen to take the Japanese currency close to a fresh three-year low.

The kiwi was an outlier, having jumped almost 0.5% to a one-month high of $0.7105 before easing back to flat at $0.7071 after a decade-high quarterly inflation reading. [NZD/]

Sterling also managed to hold on close to steady after hawkish weekend remarks from Bank of England Governor Andrew Bailey who said policymakers "will have to act" as energy prices drive consumer prices higher.

China's economic growth hit its slowest pace in a year in the third quarter, data showed on Monday, with power shortages crimping factory output - while in commodities, crude prices rose more than 1% to test 2018 highs.

The yuan eased slightly after the data. But taken together, China's slowdown, power crunch and worldwide signs that pressure from energy costs is hurting, seemed to turn investors broadly cautious as they brace for a bumpy period.

"For some time our central argument has rested on two factors coming together to support the dollar, namely the moderation in global growth and the Fed taking a gradual path towards eventual rate hikes," HSBC analysts said in a note.

"This occurred sooner than we expected."

The dollar last bought 114.35 yen, traded at $1.1579 against the euro and was up roughly 0.2% at $0.7402 per Australian dollar.

The dollar index rose 0.1% to 94.102, edging it back toward last week's one-year high of 94.563.

Bitcoin, vaunted as an inflation hedge and riding high on hopes for U.S. approval of a futures-based exchange traded fund that would funnel cash into the sector, hovered just shy of its record peak of $64,895. It last bought $62,393.

HIKES LOOM IN 2022

Minutes from September's Federal Reserve meeting published on Wednesday, affirmed traders' expectations that the central bank will start tapering asset purchases this year. The minutes showed policymakers readying to start tapering soon and wrapping up the process by the middle of next year.

Fed funds futures are priced for rate rises to begin soon after that is complete, with markets having pulled forward hike expectations to as soon as the third or fourth quarters of 2022, while two-year Treasury yields jumped to a 19-month high of 0.421%. [US/]

Swaps pricing also shows mounting pressure globally with an almost 30% chance of a Bank of England rate hike this year and nearly 80 basis points of hikes priced through 2022.

Sterling held at $1.3734, just below Friday's one-month high of $1.3773.

In New Zealand, where consumer prices zoomed higher at their fastest clip since 2010, analysts reckoned the central bank would need to stay the course on its hiking trajectory even as the lockdown of Auckland was extended.

"It just reinforces the case that they do need to stick to that path," said Westpac analyst Imre Speizer. "Inflation is very strong."

Even in Australia, where the central bank has insisted it expects to keep rates on hold until 2024, swaps are pricing hikes to start in mid-2022 and for 100 bps of increases before 2024 even begins.

With a quiet calendar on Monday, traders are looking ahead to the release of the Fed's 'beige book' of economic conditions on Wednesday and keeping an eye on China's credit markets where a number of developers owe coupon payments this week.

========================================================

Currency bid prices at 0549 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.1580 $1.1599 -0.15% -5.21% +1.1602 +1.1578

Dollar/Yen

114.3200 114.2000 +0.11% +10.69% +114.4450 +114.0300

Euro/Yen

132.37 132.52 -0.11% +4.29% +132.6800 +132.1600

Dollar/Swiss

0.9251 0.9231 +0.19% +4.53% +0.9252 +0.9232

Sterling/Dollar

1.3726 1.3745 -0.13% +0.48% +1.3764 +1.3725

Dollar/Canadian

1.2397 1.2359 +0.34% -2.62% +1.2400 +1.2350

Aussie/Dollar

0.7404 0.7419 -0.20% -3.74% +0.7436 +0.7400

NZ

Dollar/Dollar 0.7064 0.7072 -0.11% -1.63% +0.7105 +0.7040

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Editing by Richard Pullin and Jacqueline Wong)