LONDON, Oct 18 Reuters - The dollar gained broadly on Monday, rebounding towards a one-year high last week as the China slowing economic growth and firmer U.S. Treasury notes boosted the appeal of the greenback with the Japanese yen among the major losers.
Three data points over the weekend, namely weak inflation data in China, moderate comments from the Bank of England and slowing growth in New Zealand have reaffirmed the broad theme of rising inflation and growth in global markets.
Investors have chosen to trade this theme by buying the greenback against its rivals and simultaneously selling currencies of commodity importers like Japan.
Recent weekly positioning data in the currency markets showed hedge funds have ramped up their bullish bets on the Japanese yen to their biggest levels since May 2019 while increasing their net bearish bets on the greenback.
Higher Treasury yields combined with China s weak GDP numbers are raising demand for the U.S. dollar and other currencies on Monday, said Raffi Boyadjian, an investment strategist at brokerage XM.
The U.S. currency yields reformed on Monday, extending a trend in recent weeks with five-year bond yields rising to their highest levels since February 2020 as investors ramped up bets that the U.S. Federal Reserve was preparing to raise interest rates as soon as possible and not too long ago.
The outlook of inflation has also prompted anticipations of earlier tightening of global monetary policy, with Danske Bank expecting as much as two rate hikes from the Fed in the second half of next year.
For a while our central argument rests on two factors joining together to support the dollar, namely the economic and nominal growth and Fed taking a gradual path towards eventual rate hikes, HSBC analysts said in a note. In March 2010, this happened earlier than we had planned. The dollar index rose 0.1% to 94.05, edging it back toward last week's high of 94.563 one-year-high which was the highest level since September 2020.
The yen was close to a new three-year low, with the dollar last up 0.1% at 114.36 yen, close to the level of 114.47 that was last touched in October 2018.
In Auckland, where consumers prices go higher at their fastest rate since 2010 analysts said the central bank would need to stay the course on its hiking trajectory even as the lockdown of New Zealand was extended.
The kiwi fell almost 0.5% after a quarter-high inflation reading to a 50-month high of $0.7105, before easing back to hold the low of $0.2% at $0.7056 after a decade-high monthly reading of the volume of foreign currency.
Sterling fell 0.1% to $1.3735 despite hawkish weekend remarks from Bank of England Governor Andrew Bailey who said policymakers would have to act as energy prices drive consumer prices higher.
In other data highlights, China's economic growth hit its slowest pace in the third quarter of last year with power shortages crimping factory output - while crude prices rose more than 1% to test 2018 highs.
After the data, the yuan eased slightly. But taken together, China's slowdown, power crunch and global signs that pressure from energy costs is hurting were designed to turn investors cautious as they prepare for a bumpy period.
In cryptocurrencies, bitcoin, riding high on hopes for U.S. approval of a futures exchange traded fund that would funnel cash into the sector, hovered just shy of its record low of $64,895. It last bought $60,956.