Tom Westbrook

SYDNEY – Friday’s dollar gains were expected to continue as traders bet that interest rates will rise faster than usual on North Atlantic shores. Meanwhile, sterling and the are also expected to increase their rate of return.

Emerging markets have seen a currency crisis in Turkey, which has caused the lira’s record-breaking low to plunge after the central bank, under political pressure, cut rates despite an inflation rate of near 20%.

The biggest major has been the euro, which has recovered from a slump to $1.1263, and traders stated that the currency is still susceptible as the fundamentals of the market and its positioning shift to favor the dollar.

This week’s single currency loss of 0.6% has helped the dollar rise 0.5% to a 16-month peak. At 95.531 it stood just short of this level last week.

Kit Juckes, strategist at Societe Generale (OTC) stated that “previous post-GFC instances when the euro traded lower than $1.10”

If the question was “Will the market get very few euros now?” then my answer would be yes, unless the data is improved dramatically.

On the heels of last week’s unexpected inflation, U.S. retail sales exceeded expectations this week. Meanwhile, in Europe COVID-19 continues to rise, and car sales fell for the fourth consecutive month. Central bankers have pledged to keep rates low.

Friday’s movements were very limited and central bank speakers will dominate the event. Christine Lagarde (European Central Bank President) is scheduled to speak at 0830 GMT. Huw Pill (Bank of England economist) speaks at 1200 GMT. Federal Reserve officials Christopher Waller & Richard Clarida are on the agenda at 1545 GMT and 1715 GMT respectively.

Elsewhere, the yen suffered a 0.4% weekly drop. However, at 114.27 dollars it has recovered from a near five-year low.

It is expected to suffer a third weekly loss. The commodity-sensitive and heavily shorted Australian dollar has suffered from falling oil prices in recent days. Last time, it stood at $0.7277. [AUD/]

Sterling is the star performer among G10 currencies. It has gained 0.7% to $1.3499 due to an inflation surge to a 10-year peak. This has prompted bets that the Bank of England will hike rates within a month.

Overnight, the kiwi surged 0.7% and remains steady throughout the week. Traders are now betting on the RBNZ becoming more hawkish next week and raising rates by 50 basis points (bps), or possibly adjusting its long-term rate trajectory.

The Swaps market has priced in a 40% chance for a 50-bps increase.

Analysts at ANZ Bank stated that “Rates markets are still skittish” and that the data pushed bellwether’s two-year swap up to a new year high, which in turn put the bid in front of the kiwi.

The local market could face disappointment if the ‘only’ 25 bps hike we are expecting is priced in at 36 bps next week and 198 over eight meetings.

It was heading for its worst week in May with a drop of 13%. The last time it came close to the three-week mark was at $57,000.