By Ray Wei
SINGAPORE (Reuters) – The dollar retreated from multi-year highs on Friday after a strong rally earlier in the week, despite expectations that the Federal Reserve will need to raise more to keep inflation in check, which pushed Treasury yields higher and kept the dollar in the demand. .
The dollar’s past rally pushed a critical $7 threshold overnight for the first time in more than two years, with the yuan still under pressure at 7.0032 in early Asian trade.
The wild unit hovered dangerously close to the stop, finally closing at 6.9971 per dollar.
The yuan is often used as a liquid proxy, hitting a two-month low of $0.6685 on Friday.
Likewise, it fell to $0.5956, its lowest level since May 2020.
“I think that’s in part, I think it’s a psychological level,” Ray Atrell, head of foreign exchange strategy at National Australia Bank (OTC:), said of the relationship between Australian currencies and the depreciation of the yuan.
“But I also think it was the big drop in oil prices and other commodities as well…the magnitude of the oil price movement obviously affected all commodities or pro-cyclical currencies.”
Meanwhile, the euro rose 0.14% to $1.0008, while the British pound rose 0.02% to $1.1474.
The dollar fell 0.37% against the Japanese yen to 142.96, supported slightly by hopes of possible currency intervention.
Traders are now turning their focus to a series of monetary policy meetings by the Federal Reserve, the Bank of Japan and the Bank of England next week, with the Federal Reserve taking center stage.
US retail data released overnight showed retail sales unexpectedly rebounded in August, while a separate report from the Labor Department showed initial claims for state unemployment benefits fell by 5,000, adding to the situation that the economy could tolerate higher interest rates.
Treasury yields rose on the back of the data, as investors revised their expectations of where interest rates could go. The two-year mark hit a new 15-year high of 3.879% overnight, and last settled at 3.8646%. Meanwhile, 10-year bond yields were flat at 3.4431%.
Fed fund futures now point to a 25% chance of a 100 basis point hike at next week’s meeting.
“The dollar’s strength will continue, at least in the near term. The two main factors supporting the US dollar are still in place, so we have very tight pricing in the market for the FOMC… said Carol Kong, Senior Fellow in International Economics and Currency Strategy at the Commonwealth Bank. Australian (OTC:):
“As long as the prospects for the global economy remain weak, the US dollar can remain strong and perhaps advance a bit.”
It fell 0.16% to 109.61, but remained close to a two-decade peak of 110.79.