Dollar rises on expected rate hike in 2022

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Dollar rises on expected rate hike in 2022

NEW YORK, January 3, Reuters - The U.S. dollar rose against a basket of major currencies on Monday, in sync with government bond yields, as investors expect the Federal Reserve to stay on its path of interest rate hikes in 2022.

While the surge in coronaviruses caused by the Omicron variant continued to impact global travel and public services, investors remained optimistic that lockdowns would be averted.

The U.S. Food and Drug Administration approved the use of a third dose of the Pfizer and BioNTech COVID 19 vaccine for children aged between 12 and 15 years, and narrowed the time for booster shots to five months from six months after primary doses.

Yields on U.S. two-year notes, sensitive to rate hike expectations, along with 5 year notes, went to their highest level since March 2020. Benchmark U.S. 10 year and 5 year yields rose to six week peak. The U.S. central bank is expected to hike interest rates by mid- 2022.

The markets in general have a short attention span when it comes to anything COVID related, and it has been this way since the beginning, said Erik Bregar, president and CEO of Bregar Capital Corp in Toronto.

Today, I don't feel a risk-off vibe because oil is steady, stocks are still green. The drivers are yields right now. The dollar index rose 0.552%, with the euro down 0.64% to $1.1295.

The greenback is on track for its biggest daily percentage gain since December 17th.

Economic data showed a gauge of manufacturing for December by Markit, dipped to 57.7 from its previous reading of 57.8, but still indicates expansion. Construction spending in November rose 0.4%, just shy of expectations of a rise of 0.6%.

The Japanese yen fell by 0.17% against the dollar at 115.27 per dollar, while sterling was trading at $1.3482, down 0.35% on the day.

London, Europe's main FX trading center is closed for a market holiday, so trading volumes were expected to be thin.

In the euro zone, manufacturing activity remained resilient, as factories took advantage of an easing of supply chain constraints and stocked up on raw materials at a record pace.

Turkey's annual inflation rate went to 36.1% last month, its highest in the last 19 years Tayyip Erdogan has ruled, laying bare the extent of a currency crisis caused by the president's unorthodox interest rate-cutting policies.

The Turkish lira was trading up 1.7% at 12.960 per dollar last week, but had a low of 13.92 at the beginning of the day.