IN the first half of the week, the US dollar rode a safe haven rally to one-month high against the euro, its strongest in three months against Canada’s loonie and to fresh five- and six-year highs against the New Zealand and Australian dollars. Markets flocked for the US dollar due to swift downturn in oil, to ride out uncertainty stemming mainly from Greece’s ongoing debt crisis.
Interest rate differentials between lower yielding European government bonds and higher-yielding US Treasury (UST) also buoyed the dollar. However, with dovish Federal Reserve minutes released as some officials cautioned against premature rate hike decisions, the US dollar softened from Tuesday’s high. The overnight interest swap market now has just 4 basis points priced in for the September FOMC meeting and 9.5 basis points for December. This suggests that the implied probability of a September liftoff is roughly 20%.
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