The dollar was headed for its third weekly gain in a row and stood near its highest levels in decades against the euro and yen on Friday, with investors in little mood for selling ahead of US labour data that could bolster the case for aggressive interest rate hikes.
A solid US manufacturing survey overnight was enough to push the greenback above 140 yen for the first time since 1998, and it also hit multi-year highs against sterling and the kiwi.
Against the stronger dollar, the euro fell back below parity to $0.9967 and was not far from last week’s 20-year low of $0.99005. The yen hit a fresh trough of 140.4 in the Asia trade.
The dollar index made a two-decade top at 109.99 overnight and was last at 109.51. It is up more than one per cent in the week since Federal Reserve Chair Jerome Powell said at Jackson Hole, Wyoming that rates would need to be high “for some time” to control inflation, surprising markets.
Sterling fell 0.7pc overnight and is down about 1.5pc this week. It was last at $1.1551 after touching $1.1499 overnight.
The Australian and New Zealand dollars are each down about 1pc on the week, with the Aussie last at $0.6789 and the kiwi bottoming at $0.6051, its lowest since May 2020.
“We had thought that the slowing of the economy would be enough to pause Fed hiking by November but Powell’s clear nod to restrictive policy points to a higher bar to a pause,” said Steve Englander, head of G10 FX research at Standard Chartered.
“We think US labour data would have to slow dramatically to deter a 75 basis point policy rate hike,” he said.
Non-farm payrolls data is due at 1230 GMT and economists expect 300,000 jobs were added in August, which would extend a strong run of data. A surprise well below 275,000 would be needed to change the rates outlook, Englander said.
Fed funds futures are pricing about a 75pc chance that the Fed hikes rates by 75 bps this month and it has been a week of heavy selling in the Treasury market, lifting two-year yields by 12 bps and 10-year yields by 23 bps.
The two-year yield hit a 15-year high of 3.551pc overnight and the 10-year hit a 2.5 month high of 3.297pc.
The moves have supported the dollar’s march on the yen in particular, since Japan’s yields are anchored near zero.
Japan’s government was watching currency moves with an acute sense of urgency, Chief Cabinet Secretary Hirokazu Matsuno said on Friday.
Elsewhere in Asia, the Chinese yuan also remained under pressure at 6.907 per dollar, with fresh Covid-19 lockdown measures in Chengdu weighing on the investor mood.
Central bank meetings are due in Europe and Australia next week and markets expect hikes. Traders see about a 60pc chance of a 50 bp hike in Australia and an almost 80pc chance of a 75 bp hike from the European Central Bank.