U.S. dollar hits one year high as energy prices drop

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U.S. dollar hits one year high as energy prices drop

The Japanese Yen stands close to a three-year low against the greenbacks.

New York City, October 12 Reuters : The dollar rose on Tuesday to an one year high on expectations that the U.S. Federal Reserve will announce a tapering of its massive bond buying program next month, as concerns over rising energy prices sent investors to the safe-haven greenback.

Yields on the two-year Treasury note have jumped in more than 18 months as investors sold U.S. debt, reckoning that rising energy prices would fuel inflation and add pressure on the Fed to take action faster than anticipated.

The focus is right now Treasury rates, said Joseph Trevisani, senior analyst from FXStreet.com. I think the credit markets are anticipating a stop of taper in November. Investors will be closely watching U.S. consumer price index data on Wednesday and retail sales data on Friday for further clues as to when the Fed might begin winding down its stimulus measures.

The dollar index, which measures the Greenback against a basket of other major currencies, reached 94.519, its highest since September 2020.

The spike in U.S. yields prompted investors to dump the Japanese yen against the dollar, which results in the second biggest daily value drop of the Japanese currency on Monday.

The dollar held near three-year highs against the yen, which has fallen 4% in three weeks against the greenback on Wednesday as Treasury yields continued to rise.

The primary driver of the move is the further rise that we’ve seen in the U.S. Treasury yields - so it's a relatively simple story of a widening rate differential adding to the attraction of the carry trade, said Ray Attrill, head of international exchange strategy at National Australia BankAustralia Bank.

A Deutsche Bank monthly market sentiment survey noted this month that an overwhelming majority of respondents expect U.S. Treasury yields to rise from current levels.

Oil rose to $84 a barrel, within sight of a three year high, as a rebound in global demand after the worst of the COVID -19 pandemic caused price spikes and shortages in other energy sources. The coal industry has scaled record peaks and gasoline prices remain four times higher than at the start of 2021 in Europe.

The commodity-linked Australian dollar was up 0.07% in $0.73515.

The ZEW indicator of economic sentiment in Germany for the fifth month, the latest in a string of indicators showing supply bottlenecks holding back recovery in Europe's largest economy.

The euro and the British pound were both down 0.14% against the dollar, at $1.1537 and $1.3577 respectively.

In cryptocurrencies, bitcoin was up 1.41% on $56,676 to Rs.5,666. Bitcoin and Ether, the second biggest cryptocurrency on the world's market, dropped 1.42% to $3,493.