Dollar rallies; Pound drops to 37-year low

16 Sep 2022

The Dollar once again rallied on Friday as U.S. Treasury yields edged up ahead of a likely huge Fed rate hike next week, whilst the Chinese Yuan declined.

Against a basket of major currencies, the greenback is set to rise more than 1% this week, whilst the Yuan is the latest to drop to a multi-year low by the Dollar’s upward trajectory. 

The Dollar index edged up 0.5% to 110.26, not far from the 20-year high of 110.79 hit earlier in September. 

“With the Fed set to hike by possibly another 175 bps before year-end, we would expect financial conditions to remain unfavourable for assets generally and it clearly points to the U.S. Dollar being the primary beneficiary,” stated head of research, global markets at MUFG, Derek Halpenny.

The Dollar drove the offshore Yuan past the threshold of 7 per Dollar for the first time in over two years on Friday, with the Chinese currency dropping to 7.037, Reuters reports. 

The onshore Yuan also surpassed this crucial level soon after markets opened on Friday. 

Elsewhere, the Euro fell 0.5% to $0.9945, whilst the Pound declined to a fresh 37-year low of $1.1351, down 1%, and a 17-month low against the Euro. This followed weaker-than-forecast retail sales data that fuelled fears about the state of the UK economy. The single currency hit a high of 87.66 pence, the highest level seen since February last year, and at the time of writing was up 0.39% at 97.52 pence. 

Retail sales volumes in the UK fell 1.6% in August, according to the Office for National Statistics, the largest drop since December last year, and bleaker than forecast by a Reuters poll of economists, that had expected a 0.5% decline.

"The grinding backdrop of everything that's going on is weighing on Sterling, with the UK running these massive external deficits and the risks around the new prime minister's policies adding to that," said John Hardy, head of FX strategy at Saxobank.