Commodity currencies at multi month highs, sterling firm on BoE

Commodity currencies stood near multi-month highs on strong raw material prices. This is while the improved mood chipped away at demand for the safe-haven U.S. dollar. This has been supported by expectations of Federal Reserve tapering. Sterling was also riding high on firming perceptions the Bank of England (BoE) will raise interest rates.

Yukio Ishizuki, senior strategist at Daiwa Securities said that it looks almost certain that the BoE will raise interest rates in November or December. This is because the inflation could get out of control otherwise given a severe labour shortage. And globally they are likely to see rate hikes to curb inflation in many countries. This means the U.S. dollar is standing out less than before, in terms of rate hike expectations. The dollar’s index dipped 0.10% to 93.514. Expectations that the Fed could soon scale back pandemic-era stimulus has underpinned the dollar. Commodity currencies led gains against the dollar as oil prices hit their highest levels in many years.

The Canadian dollar rose about 0.2% to C$1.2295 per U.S. dollar. The Australian dollar also extended its bull run to hit a 3-1/2-month high of $0.7545. Teppei Ino, senior currency strategist at MUFG Bank said that given the massive rise in commodity prices, commodity-linked currencies will enjoy a tailwind. Oil prices have been supported by strong demand. Because the countries started to reopen their economies. U.S. crude and fuel inventories have tightened sharply. Brent crude futures hit its highest level. The British pound stood at $1.3828. Against the euro, sterling was near its highest levels, at 84.26 pence per euro. The UK currency held momentum due to rising expectations of a BoE rate hike.

Kyosuke Suzuki, president of Financial algotech company at Ryobi Systems said that it is as if the BoE is stealing the spotlight from the Fed as it looks likely to raise rates before the Fed. The Federal Reserve is widely expected to announce tapering of its bond purchase. It is expected to distance itself from future rate hikes for now. Money markets are pricing in one U.S. rate hike. This is after the Fed is expected to have finished its tapering process in the middle of next year.

The euro held firm at $1.1664. The positive risk mood weighed on the Japanese yen, often perceived as a safe-haven currency. The dollar stood at 114.39 yen. The yen is dented by expectations that its trade deficit could widen as rising oil prices boost its imports bill while its car exports are hampered by chips shortages. In cryptocurrencies, bitcoin slipped 1.8% to $64,789. Ether climbed 0.7% to $4,194.