Dollar hits 18-month high as Fed's Hammack backs more tightening

The dollar index climbed to an 18-month high on Monday as a Russia-Ukraine energy truce faltered and oil prices rose again, FXStreet reports. Later in the day, Cleveland Fed President Beth Hammack added fuel by calling for higher interest rates, a sharp contrast with the Fed pause bets that trimmed the dollar's fourth weekly gain on Friday.

What moved and why

According to FXStreet, US President Trump said on Friday that Russia and Ukraine had agreed to stop striking each other's energy sites, and Brent fell below $103 a barrel when markets reopened. That relief did not last. FXStreet's headline describes the energy ceasefire as failing, and the dollar index rose to an 18-month high.

The investingLive European session wrap said WTI crude rose 1.4% to $92.99, gold fell 0.5% to $4,170 and the Swiss franc lagged. It described a quieter European morning. The US bond market was closed for Columbus Day while stocks stayed open, which investingLive noted leaves traders without Treasury yields, a key driver of sentiment lately.

Oil and risk appetite also hit other markets. Our sister site covers how bitcoin slipped as oil climbed on Ukraine and Iran strikes.

The majors

As a reference point, the ECB fixing of 12 October showed the dollar firmer against most majors compared with the 9 October fixing. EUR/USD was fixed at 1.1181, down 0.22%. USD/JPY was fixed at 158.60, up 0.22%, and USD/CAD at 1.4262, up 0.25%. NZD/USD fell 0.26% to 0.5599. USD/MXN posted the largest move, rising 0.78% to 18.342. GBP/USD was the exception, fixed 0.11% higher at 1.3235.

Later price action told a slightly different story for sterling. FXStreet reported the pound retreating about 0.11% against the dollar on a thin data calendar, with geopolitics driving trade. Earlier, Investing.com had reported that the pound edged up and the euro slipped as Fed bets backed the dollar.

The euro stayed under pressure from France. FXStreet says EUR/GBP slid to a fresh year-to-date low of 0.8445 on French political and fiscal concerns, trading around 0.8450, down 0.17% on the day. Chart: EUR/GBP.

The yen weakened again. FXStreet reports USD/JPY gained 0.28% to trade around 158.70, citing the oil rally and fiscal concerns. Chart: USD/JPY.

In Asia, MUFG's Lee Hardman said the renminbi has outperformed the euro against the dollar, with USD/CNY at a year-to-date low near 6.6900, according to FXStreet. Investing.com reports the Indian rupee rebounded from near a record low after the RBI unveiled support measures.

Central banks in the news

Hammack was the main policy voice. FXStreet reports she said interest rates need to be higher, that inflation remains "too high" and that more economic tightness is needed. In separate remarks, she said the neutral rate is "likely higher", that she is hearing signs of a problem with inflation expectations, and that the question is "how fast to make policy more restrictive", according to FXStreet.

What to watch next

• US CPI (Wednesday): MUFG sees headline inflation at 3.6%, investingLive reports. In MUFG's view, an in-line 0.2% core reading would likely keep October hike pricing subdued, while a repeat of August's 0.3% would revive hike bets.
• Australian jobs and RBA minutes: investingLive's preview says unemployment is seen at 4.6%, and the minutes carry extra weight after Governor Bullock's softer post-meeting tone.
• Thursday: UK GDP, then US producer prices, retail sales, jobless claims and the Philadelphia Fed index, according to investingLive's week-ahead calendar.
• US bond market reopening: Treasury yields return after the Columbus Day closure.