U.S. dollar starts fourth quarter strong as higher U.S. rates boost confidence


2nd October 2023 – (New York) The dollar began the final quarter of the year on a positive note, gaining solid support from expectations of prolonged higher U.S. interest rates. This momentum pushed the yen to its lowest level in 11 months.

Currency movements remained subdued during early Asia trade, as parts of Australia were on holiday and China observed its Golden Week. However, analysts noted that the narrowly-avoided U.S. government shutdown could bring some relief to markets.

The yen declined to around 149.74 per dollar, reaching an 11-month low. The Japanese currency has been steadily depreciating towards the 150 threshold, which some experts see as a potential trigger for intervention by Japanese authorities, similar to their actions last year.

Olivier d’Assier, Axioma’s head of applied research for APAC, commented, “Fear of intervention by the BOJ above the 146 level has come and gone, and the currency is now above 148 to the dollar, with the BOJ remaining absent from currency markets.”

In a summary of opinions from the Bank of Japan’s September meeting released on Monday, policymakers discussed various factors to consider when exiting ultra-loose monetary policies.

“They’re wary of tightening too early and squashing… a rise in inflation and growth,” noted Jarrod Kerr, chief economist at Kiwibank. “They deserve to be cautious, though.”

In the wider currency market, the euro weakened by 0.07% against the dollar, trading at $1.0565. The euro had its worst quarterly performance in a year, falling 3% in the previous quarter.

Similarly, the pound declined by 0.13% to $1.2188, having experienced a nearly 4% slide against the dollar during the third quarter.

Meanwhile, the U.S. dollar index remained close to its recent 10-month high, last trading at 106.24. It delivered its best quarterly performance in a year last month, benefiting from consistently hawkish rhetoric from the Federal Reserve.

“I’d rather be in dollars at the moment than euros or pounds or others,” stated Kiwibank’s Kerr. “I think the dollar will find a bit more support.”

Late on Saturday, the U.S. Congress passed a stopgap funding bill with significant Democratic support, aiming to prevent the federal government from experiencing its fourth partial shutdown in a decade. Chris Weston, Pepperstone’s head of research, commented that this development “should be welcomed by risky assets.”

Weston added, “We also now have a firm understanding that the U.S. Labor Department will release nonfarm payrolls data this Friday, as well as the U.S. CPI report on 12 October, which may have not been the case had the (government) shut down. This puts the 1 November FOMC meeting back on the table as a potential venue for a further 25-basis-point rate hike.”