TOKYO Reuters - Sterling rose to a fresh post-budget high in Asia, weighing on the U.S. dollar index, as the UK currency extended its recovery a day after the British government capitulated on tax cuts.
The Aussie dollar fell to near the top end of its recent range against the dollar, ahead of a central bank decision later in the day, with traders split on the odds of a quarter point or half point in interest rate rise.
The U.S. dollar lost some of its support due to a slide in Treasury yields as local economic data showed a slowdown in manufacturing, suggesting that aggressive Federal Reserve hikes are already being felt. The US sterling was close to $1.13265 after reaching the highest level since Sept. 22, the day before the new government roiled markets with its mini-budget of tax cuts funded by expanded borrowing.
British Prime Minister Liz Truss was forced to back down from the plan on Monday due to a party rebellion.
The euro went close to the highest since Sept. 22, last swapping hands 0.07% stronger at $0.9827.
The dollar index, which measures the currency against six peers including sterling and the euro, was 0.07% firmer at 111.63, but it is still close to Monday's low of 111.46, a level last seen on Sept. 23. It had soared to a two-decade high of 114.78 last Wednesday.
The Institute for Supply Management's ISM survey showed that U.S. manufacturing activity was the slowest in nearly 2 -- 1 2 years in September, with a measure of inflation at the factory gate decelerating for a sixth consecutive month.
The dollar rally has more to run, and the Commonwealth Bank of Australia predicts sterling's respite will be short-lived.
Over the coming month, USD can be elevated as the FOMC Federal Markets Committee continues to hike aggressively and the global economy enters a recession, CBA strategist Joseph Capurso wrote in a client note.
He said that global recession risks can cause GBP to drop significantly, and the weak UK outlook will keep GBP under pressure over the medium-term.
The dollar was almost flat at 144.64 yen, keeping it below 145 after briefly climbing above that level on Monday for the first time since Japanese authorities intervened to support their currency on Sept. 22.
If sharp and one-sided yen moves persist, the Japanese finance minister Shunichi Suzuki said on Monday that authorities are ready for decisive steps in the foreign exchange market.
The Aussie fell 0.25% to $0.650, but was not far from the top of its range since Sept. 23 at $0.6537. It sank to a 2 -- 1 2 year low of $0.63635 last week.
The Reserve Bank of Australia RBA has a quarter-point increase in odds, and a 59% chance of a half-point hike, and traders place 41% odds for a quarter-point increase from the Reserve Bank of Australia RBA at 0330 GMT.
New Zealand's kiwi fell 0.10% to $0.572, but was still close to the top of its recent range.