LONDON — The dollar jumped to three-month highs on Monday, extending its recent gains as expectations of rising US interest rates gathered pace, while gold prices plunged to their lowest in more than five years. The dollar reached its highest since April 23 against a basket of major currencies and was last up 0.1 percent on the day.
The euro fell to its lowest since late May on the EBS trading platform but last traded up 0.1 percent at $1.0840. The yen dropped 0.1 percent to 124.20 to the dollar.
The greenback posted its best weekly performance in about two months last week, after Federal Reserve Chair Janet Yellen reiterated that US interest rates will probably rise later in the year. Data on Friday showing a pickup in US consumer prices and housing starts also helped the rally.
The dollar reached its highest in three months against a basket of currencies on Monday, with the New Zealand dollar the only major standout after comments by Prime Minister John Key gave investors pause for thought on the scale of its slide.
“The euro's direction is probably still toward the downside,” said Teppei Ino, an analyst for global markets research for Bank of Tokyo-Mitsubishi UFJ in Singapore.
The kiwi was the exception, recovering from levels near last week's six-year low of $0.6498 after Key was reported as saying its 25 percent slide in the past year had been more than expected and that the economy was growing at a good pace.
That came ahead of a meeting this week of the Reserve Bank of New Zealand, which is expected to cut interest rates further to support growth. Traders said the comments went against some bets in the market of a larger half-point reduction in rates.
“The sharpness of the move is perhaps evidence of just how short of NZD the market is heading into this week's meeting,” said Adam Cole, Head of G10 FX Strategy at RBC Capital Markets in London.
“Market rates attach a fairly high probability to a 50 basis point cut, so a 25 basis point move may see NZD shorts covered and a kneejerk higher.” The US dollar's gains in the past week have strengthened the hopes of some of the dollar bulls still betting on a run at parity with the euro over the next year.
While confidence has fallen off among many analysts and investors in a Fed move in September, most say market pricing still leaves the dollar room to move higher if the US central bank finally looks like delivering after the summer.
At the same time, the dollar's less assured performance since March, and broader problems with growth in both Europe and Asia, have been leading other central banks to reduce their own interest rates, in turn weakening currencies.
A 4-percent slump in gold prices on Monday, also in part a result of the dollar's gains, added to pressure on currencies like the Canadian and Australian dollars and the Norwegian crown, which tend to be driven by commodity prices.
“All of the commodity currencies are taking a hammering from the dollar's rise,” said a dealer with one international bank in London. “There should be more pressure to come.” — Agencies
