Dollar’s rise pressures commodities amid Fed anxiety
The U.S. dollar was riding high in Asia on Friday as unceasing speculation about the prospects for rising U.S. interest rates undermined commodity prices and spurred investors to unwind leveraged trades in higher-yielding currencies.
Talk the Federal Reserve might take a hawkish turn at its policy meeting next week, possibly by dropping its commitment to keeping rates low, has seen U.S. Treasury yields steadily creep higher and injected new life into the dollar.
This sudden outbreak of volatility has prompted some to pare back on carry trades, where they borrow at low rates in euros and yen to buy higher-yielding assets such as commodity-linked or emerging market currencies.
The rise of the U.S. currency shoved oil prices to their lowest in two years, while gold sank to an eight-month trough and copper fell to a three-month low.
“The market will be on the defensive going into next Wednesday’s Fed meeting due to the growing contingent who are convinced a hawkish language change is imminent,” said William O’Donnell, head of Treasury strategy at RBS.
Source: Reuters
