Fed minutes, virus skyrocket dollar to 9-month high, commodity FX tumbles
December 5, 2021

Fed minutes, virus skyrocket dollar to 9-month high, commodity FX tumbles

The US dollar rose to a nine-month high on Thursday as worries about resurging coronavirus infections and Federal Reserve meeting minutes showing policymakers weighing reducing pandemic-era stimulus this year hit global stocks and commodity-linked currencies.

The dollar index, which measures its performance against six currencies, extended gains in early London trading to rise 0.3% to 93.434 to its highest since November 5, 2020. It was last up 0.3% by 1024 GMT to 93.368.

The minutes of the Fed’s July meeting showed officials largely expect to reduce their monthly bond buying later this year, but consensus on other key issues appeared elusive, including the timing of the start of the taper and whether inflation, joblessness or the coronavirus pose a bigger risk to economic recovery.

The minutes, along with sustained worries about the spread of the coronavirus, pushed Wall Street’s main stock index down more than 1% and drove several currencies to multi-month lows against the safe-haven dollar. European markets stumbled at open and US stock futures were pointing to a lower open while safe-haven bonds rallied.

The euro fell as low as $1.16655 for the first time since Nov. 4 and was last down 0.2% at $1.1694, while the sterling fell 0.5% to $1.36660, the lowest since July.

The reduction in debt purchases is also widely considered positive for the U.S. dollar as it is expected to raise government bond yields, making it more attractive for investors to hold dollar-denominated assets.

Though the dollar touched a new milestone, Commerzbank analyst Antje Praefcke noted that the minutes provided little insight compared to what regional Fed chairs have recently said.

“The market will presumably only receive more detailed news in September when the Fed publishes its new projections and dot plots,” she said.

“Until then, it makes more sense to keep an eye on the current developments of the pandemic and economic data,” Praefcke added.

With pandemic fears in focus, commodity-exposed currencies fell sharply on Thursday.

The Norwegian crown extended its fall against the euro even as the country’s central bank kept interest rates on hold and reiterated plans to hike them in September.

It fell more than 1% to the lowest since July against the euro at 10.5405 crowns and dropped similarly against the U.S. dollar.

“Despite the hawkish tone being reiterated from the Norges Bank, it isn’t helping NOK out today as the risk backdrop deteriorates yet again and oil markets feel the pain,” said Simon Harvey, senior FX strategist at Monex Europe.

Weakness in oil prices, which hit their lowest since May on Thursday, hurt currencies, such as Norway’s that are highly exposed to the sector.

The Australian and New Zealand dollars fell more than 1% each to their lowest since November 2020 at $0.71445 and $0.68100 respectively.

The kiwi fell extended its losses on Wednesday, when New Zealand entered a new lockdown, delaying its central bank from becoming the first in the G10 from raising rates during the pandemic.

In Australia, New South Wales state, home to Sydney, reported record infections for a second day on Thursday, despite a strict lockdown and an unexpected drop in the unemployment rate did little to support the Aussie dollar.

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