Dollar extends gains as Fed hike speculation builds

dollarHONG KONG: The dollar extended gains in Asian trade Tuesday as investors swung their attention to expectations of another US interest rate hike next month, but equities struggled under the weight of profit-taking following the previous day’s rally.

Regional markets surged Monday, with Tokyo and Seoul leading the way, following centrist Emmanuel Macron’s victory in France’s presidential election and last week’s solid US jobs report that reinforced views of a strengthening economy.

The better-than-expected reading on US payrolls had investors betting the Federal Reserve will stick to its plan to raise borrowing costs twice more this year — including once next month — having lifted rates in December and March.

The likelihood of further tightening has seen the dollar rally more than four percent since hitting a recent low around 108.30 yen in mid-April.

Analysts say it could push further following the release of sales and consumer price index figures this week.

“While we think the Fed will be resolute on its course towards at least two rate hikes, the market is underpricing the risk that (the central bank) will tighten rates more quickly than expected, so a robust retail sales print and a stronger-than-expected CPI print will be a call to action for dollar bulls,” said Stephen Innes, senior trader at OANDA, in a note.

The greenback was also up against the euro — which has run out of steam since pressing higher leading up to the French election — and most other high-yielding currencies, including the Australian dollar, South Korean won, Indonesian rupiah and Mexican peso.

Among stock markets Tokyo’s Nikkei ended the morning session 0.1% lower, having jumped more than two percent to a 17-month high on Monday, while Shanghai and Sydney each slipped 0.5%, and Hong Kong was off 0.1%. Wellington was 0.4% lower but Singapore added 0.2% and Jakarta 0.5%.

Seoul, which closed at a record high Monday, was closed as South Korea held its presidential election.

The tepid performance Tuesday comes despite a record close for the S&P 500 and Nasdaq on Wall Street.