Kevin Buckland

TOKYO, Reuters – On Tuesday the dollar remained near its lowest level against other major currencies. This was due to weak U.S. factory data and market bets for a faster normalization of monetary policy in foreign countries.

Since Monday, the, which is used to compare the greenback with six other currencies, has fallen 0.05% and now stands at 93.894. For the past three weeks, it fluctuated between 93.671 to the 93.563 one-year peak on Tuesday.

However, the trend has been lower in the last week. There is already a possibility of a tapering by Federal Reserve stimulus next month and a first increase in interest rates next year.

An increase in risk sentiment also has impacted the U.S. safe-haven currency.

Andrew Bailey, Bank of England governor, sent another signal to the U.K. for rate increases early by stating on Sunday that they will “have to take action” to combat rising inflation risk. New Zealand’s data showing the fastest rate of consumer price inflation for more than 10 years fueled optimism about a quicker policy normalization.

New Zealand and the U.K. saw a global rise in short term bond yields. Rates in Australia and Europe climbed comparatively more than the U.S. rates, which pushed the dollar down.

In a research note, Westpac strategists stated that “the sense that “transitory” inflation will last longer has been the primary catalyst.” As “the market recalibrated rate rise expectations in most jurisdictions,” they wrote.

They said that the U.S. may be protected from an “continuing cloud over rebound prospects Europe and China” which “should see yield spreads at front continuing to drift in USD favor,” while pointing out that the dollar index’s pullbacks should be restricted to 93.70.

Westpac, however, remains positive on New Zealand’s currency – it isn’t part the dollar index. It targets a rise to $0.74 this year, and recommends buying any dips down to $0.6985.

The Kiwi gained 0.11% at $0.7093 and is now back towards the $0.7105 mark, which was reached Monday.

A close call to $0.74225 was made by the dollar, which gained 0.09%, just shy of a record high of $0.7440 reached at the end of last month.

Sterling gained 0.13% at $1.37455, just before Friday’s peak of $1.37733.

Close to the end of the trading range, euro rose 0.09% towards $1.16205

The dollar held steady against the safe-haven Japanese yen at 114.275. However, it was not far off the nearly three-year high reached on Friday of 114.47.

U.S. manufacturing output was affected by a persistent global shortage in semiconductors, which depressed vehicle production. This further supports the notion that supply restrictions were limiting economic growth.

In a client note, Joseph Capurso from Commonwealth Bank of Australia wrote that the strong USD forecast released in July was based on – among others – U.S. Economic Outperformance. However, it is possible that USD’s drivers are changing.”

“The spike in global inflation and interest rates may support the USD as a safe haven if short-term interest rates price in a global monetary tightening cycle that it so strong it forces equities to correct lower,” with evidence of that scenario likely seen in a decline in and , he said.