Tom Westbrook

SINGAPORE (Reuters – Monday’s dollar was a slow start. The sterling and dollars climbed after a sharply rising New Zealand Inflation reading and hawkish remarks by the chief of the UK’s Central Bank. These factors put investors in the sights for rate hikes.

Now, the price has fallen 0.6% from its 2021 peak of last week. Investors believe that although price pressures may push for Federal Reserve hikes, central banks might need to take a more aggressive approach over tightening cycles.

On Monday, New Zealand saw its largest quarterly increase in consumer prices for a decade. Andrew Bailey, Bank of England Governor, stated on Sunday that rising energy prices will prolong the pulse of inflation. Policymakers must “take action” when they perceive risks.

Data showed that the Kiwi gained 0.3%, to $0.7105 for a one month high. The Sterling gained 0.1% to $1.3762 just short of Friday’s $1.3773 record. [NZD/]

Also, the Australian dollar hovered around $0.7413 and was close to its six-week high. The oil futures reached new three-year records and fuelled expectations of further price increases along global supply chains. [O/R]

Imre Speizer, Westpac currency analyst, said that the rest of the globe is likely outpacing the U.S. with inflation for the moment and this puts more pressure upon central banks than it does the U.S.

He said that the New Zealand price surprise would reinforce the need to keep the Reserve Bank of New Zealand on the same hiking path.

Although the dollar gained modestly on the euro, it was relatively steady against the Japanese yen. The last trade saw the currency trading at $1.1587 per Euro and purchasing 114.22 Yuen.

It was a popular inflation hedge, and it is riding high on U.S approval for a futures-based, exchange traded fund to funnel money into the sector. However, its record height of $64,895 hovered close to that of its previous peak. The last time it bought $62,233.

Fed Funds futures have now priced U.S. rate increases to start next September, as inflation pressures rise. However, pricing suggests that rates may linger around 1.5% until 2026.

Swaps pricing implies that quicker and longer-lasting action is likely elsewhere. There’s a nearly 30% chance of Bank of England raising rates this year. And there are almost 80 basis points of possible hikes in 2022.

Swaps indicate that even in Australia where the central banks insists it will keep rates at hold till 2024, there are price hikes for swaps starting in 2022, and 100 bps before 2024.

Analysts expect a slowdown in China’s gross domestic product on Monday. There is also intense attention on China’s credit market where many property developers are due coupon payments.

At 6.4324 USD, the yuan was solid in offshore trading.