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Dollar holds six-week high as US bonds sell off

Positive economic data and Fed Chair Jerome Powell’s hawkish rhetoric fuel the ascent of the greenback.

Investigation into Huawei adds to US-Chinese trade tensions

The yield on US bonds hit 3.2192 per cent – its highest since 2011. An increase of 5.8 basis points on the day was the biggest one-day rise in yields since Donald Trump has won the election. This reflects market confidence in the strength of the US economy.

The jump was a response to Jerome Powell’s suggestion that interest rates “may go past neutral” and that the Federal Reserve (Fed) was taking the risk of the economy overheating “very seriously”. The Fed Chair’s words confirmed a hawkish shift in the central bank’s rhetoric and further widens the monetary policy divergence with other global central banks.

The Dollar Index, a measure of the greenback against other major currencies, also reached its highest level in more than one month.

The US labour market also confirmed how robust economic growth in the country was. The data from Automatic Data Processing (ADP) showed 230,000 private-sector jobs were added in September. The number was well above economists’ forecasts of an additional 179,000, and the highest since February.

The US services sector also showed signs of economic expansion. The Institute for Supply Management’s non-manufacturing index expanded at its fastest pace on record, hitting 61.6 in September.

That said, warning signs are flashing as the emerging markets’ currency rout continues. The Central Bank of Turkey may be forced to raise interest rates following a data release yesterday, 3 October showing prices rose in September at their fastest pace in 15 years. Consumer price inflation surged from 17.9 per cent in August to 24.52 per cent in September, according to the Turkish Statistical Institute.

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