(Bloomberg) — The dollar and the yen marched higher Thursday as traders fled to havens amid growing concerns over more aggressive Federal Reserve policy and slowing economic growth in China.
The yen rose by as much as 1.1% against the greenback, while a gauge of the US dollar against a basket of peers climbed for a sixth day — its longest winning streak in two weeks. Treasuries also gained as risk sentiment soured, while stocks slumped in Asia and cryptocurrencies came under pressure.
The greenback’s strength could last another month given the heightened uncertainty over monetary policy, according to John Bromhead, a currency strategist at Australia & New Zealand Banking Group.
“At the moment it’s really benefiting from the volatility, its defensive characteristics are really shining through,” he said. “Once the market gets a feel for the fact that the Fed hiking cycle is set in stone, which it still isn’t, that’s when you can start thinking about some dollar shorts.”
Soured Sentiment
Investors sought havens after Wednesday’s US inflation print sparked fears of more aggressive hikes from the Fed that could lead to a slowdown in growth. Meanwhile another Chinese property developer defaulted on a dollar bond, becoming one of the biggest to renege on its obligations amid a record-breaking wave of missed payments.
In Hong Kong, the Monetary Authority defended its dollar peg after it hit the weak end of its trading band for the first time in three years.
China’s onshore yuan extended its decline to the lowest since September 2020 as comments by a central bank official comment on guiding interest rates on loans lower also weighed on the currency. The Australian and New Zealand dollars fell to levels they haven’t seen since mid-2020, while the South Korean won tumbled to its lowest since July 2009.
“Most Asian currencies are also closely linked to China’s economy and rely heavily on energy imports, making them more vulnerable to potential Chinese recession and rising prices,” said Ha Keon-hyeong, an economist at Shinhan Investment Corp. In the background, “the rapid pace of Fed tightening continues to provoke concerns over global growth.”
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