Dollar scales 4-week peak, sterling drops before expected BOE hike

By Samuel Indyk and Rae Wee

LONDON (Reuters) – The dollar scaled a four-week peak against major peers on Thursday after upbeat labour market data a day earlier, while sterling edged lower ahead of an expected rate hike from the Bank of England.

Data out on Wednesday showed U.S. private payrolls rose more than expected in July, while plans by the U.S. Treasury to increase the size of government bond auctions in the third quarter pushed longer-dated U.S. Treasury yields higher and boosted the dollar.

“In a world where the U.S. continues to perform and avoids a hard landing while the rest of the world is struggling, it’s an environment which is going to keep the dollar elevated,” Barclays FX strategist Lefteris Farmakis said.

The dollar index, which measures the currency against six major peers, rose as high as 102.84, the highest level in four weeks. It was last up 0.1% at 102.68, extending Wednesday’s 0.5% gain.

The closely watched U.S. nonfarm payrolls report is due on Friday.

A fresh wave of risk aversion after rating agency Fitch downgraded the U.S. government’s top credit rating could have resulted in some safe-haven buying, others said, which paradoxically also lent support to the dollar.

Against a stronger dollar, sterling fell 0.3% to $1.2674, having earlier hit its lowest level since July 3 at $1.2660.

The Bank of England’s monetary policy announcement is due later on Thursday, when the central bank is expected to raise rates by 25 basis points to a 15-year high of 5.25%, the 14th consecutive hike of the current tightening cycle.

“The market is divided because the expectation for the economy is on the weak side, but high inflation and a hawkish bias from the BOE have supported sterling,” Nordea chief analyst Niels Christensen said.

“An outside bet of a 50-basis-point hike would be a surprise and would lead to a stronger pound,” Christensen added.

The safe-haven yen was last nearly 0.3% higher at 143.95 per dollar, benefiting from risk aversion as global equities extended their recent drop. Earlier, the currency fell to a four-week low of 143.89 per dollar.

The Japanese currency had come under pressure this week even as the Bank of Japan on Friday loosened its grip on interest rates. Policymakers have also been quick to push back against speculation that the move was a prelude to an imminent exit of the central bank’s ultra-easy policy.

The euro was last little changed at $1.0933, while the Aussie fell to a two-month low of $0.6514.

The New Zealand dollar similarly slid to its lowest since end-June at $0.6063, having tumbled more than 1% on Wednesday.

“Risk assets have been more impacted by the Fitch downgrade,” Tina Teng, market analyst at CMC Markets, said. “The U.S. dollar actually strengthened against most other currencies (and) there were risk-aversion trades across all the asset classes.”

Elsewhere in Asia, China’s offshore yuan strengthened after data on Thursday showed that the country’s services activity expanded at a slightly faster pace in July, though investors continue to be on the lookout for further support measures from Beijing following last week’s Politburo meeting.

(Reporting by Samuel Indyk and Rae Wee; Editing by Shri Navaratnam, Nick Macfie and Andrew Heavens)


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