SINGAPORE After a massive climb, the dollar took a break on Tuesday, dropping only a little off historic highs against the euro, yen, and pound while U.S. interest rates are set to rise sharply. The euro touched a two-decade low of $0.9876 on Monday as the reality of winter without Russian gas set in, although it was up 0.4% to $0.9963 in early Asian trade. Due to a vacation in the United States, trading was quiet overnight.
On Tuesday, the highlight of Asia day will be an Australian central bank meeting, where markets have priced in a 64% likelihood of a 50-basis point rate rise. Indefinitely stopping gas flow along the Nord Stream 1 pipeline from Russia to Germany, Russia initially put the suspension down to an oil spill at a compressor plant but on Monday connected it to western sanctions. After falling to $1.1444 on the news, the value of the pound gained 0.5% to $1.1585 in Asia. After winning a leadership election on Monday, Liz Truss became the next prime minister of Britain. Her pledges of tax cuts have caused more uncertainty in the government’s finances. There may not be enough energy to go around, according to Michael Every, a global strategist at Rabobank, thus existential decisions must be addressed right away. The dollar index decreased 0.2% from its Monday high of 110.27 to 109.46. The yen recently traded at 140.30 to the dollar, not far from a 24-year low of 140.80 recorded last week.
The yen has fallen as rate rises in the United States pick up speed and widen the gap on anchored Japanese interest rates. The RRR for foreign exchange reserves was lowered by Chinese regulators late on Monday, allowing banks to sell more dollars as they stepped up their opposition to the dollar’s surge. The currency rate was barely little impacted by the action; in offshore trade, the yuan remained constant at 6.9412. Although analysts weren’t persuaded a significant rate hike in Australia would shift the dial too far, the Australian and New Zealand currencies increased by roughly 0.5% in early trade. The kiwi gained 0.5% to $0.6121, while the Australian dollar recently moved up 0.4% to $0.6826. Ray Attrill, head of FX strategy at National Australia Bank (OTC: NABZY), stated that “in general, currency reactions to rate hikes outside of the U.S. in recent months, even if they surpass forecasts, don’t seem to have more than a brief impact.”
