Dollar makes broad gains on inflation worries

NEW YORK: The dollar rose on Wednesday toward the 1-year high touched last week as surging energy prices fuelled concerns about inflation and interest rate hikes, knocking investors’ appetite for riskier assets and driving flows to safe-havens.

Shares fell and government bond yields rose across the world on Wednesday as oil prices hit their highest in seven years.

Rising inflationary pressures could pose headwinds to growth and have implications for how soon the Federal reserve can raise interest rates.

The Federal Reserve has said it is likely to begin reducing its monthly bond purchases as soon as November and then follow it up with interest rate increases, as the U.S. central bank’s turn from pandemic crisis policies gains momentum.

The U.S. Dollar Currency Index, which measures the greenback against a basket of six currencies, was 0.3% higher at 94.3. The index hit a 1-year high of 94.504 last week.

The U.S. payrolls report at the end of the week, which could provide clues to the U.S. Federal Reserve’s next move, remains a point of focus for investors.

Friday’s non-farm payrolls data is expected to show continued improvement in the labor market, with a forecast for 473,000 jobs to have been added in September, a Reuters poll showed.

U.S. private payrolls increased more than expected in September as COVID-19 infections started subsiding, allowing Americans to travel, frequent restaurants and reengage in other high-contact activities, the ADP National Employment Report showed on Wednesday.

Sterling/dollar implied volatility, a gauge of expected swings embedded in currency options, rose to a seven-month high around 7.9% on Wednesday, as soaring energy prices and a surge in bond yields sent the pound 0.4% lower against the greenback.

On Wednesday, Poland’s central bank raised its main interest rate to 0.5% from 0.1% on Wednesday, it said in a statement, moving to increase borrowing costs earlier than analysts had expected to counter a surge in inflation. The move helped lift the Polish zloty up about 0.4%.