The US dollar hovered near a roughly nine-month high against a basket of major currencies on growing expectations of a Federal Reserve interest rate increase in December.
The dollar index, which measures the greenback against a basket of six major currencies, was up at 98.489, just off its roughly nine-month high of 98.846 touched earlier on Monday. San Francisco Fed president John Williams on Friday repeated his call for raising rates soon, while New York Fed president William Dudley said on October 19 that a rate hike was likely this year.
The euro was at $1.0922, which is more than seven-month low of $1.0857 touched last Friday. The euro held near a seven-month low amid speculation that the European Central Bank will maintain its easy monetary policy as the Federal Reserve prepares to raise interest rates.
The single currency held onto three weeks of declines after ECB president Mario Draghi said on October 20 that neither tapering of the bank’s bond-buying plan nor an extension of the programme were discussed at its two-day policy meeting. The principal driver of euro-dollar is much more likely to be the Fed than the ECB because there’s very limited ammunition that the ECB has left to weaken the euro.
The British pound was at $1.2208. The pound has weakened by more than 17% YTD. The currency suddenly slipped lower after Prime Minister Theresa May confirmed to lawmakers in the UK parliament that her government remained committed to seek full control of immigration policies in impending Brexit negotiations with the EU.
The prime minister announced there will be a series of Parliamentary debates on Brexit before and after Christmas. This could keep the pound supported as we have seen in the past that Sterling likes the idea of Parliament having a greater say on Brexit negotiations on the assumption that the House is inclined to lean towards a softer-Brexit. Further, she said she remains completely aware of how important the financial services sector is to the UK and will seek the best possible deal to allow financial firms to trade with the EU.
The yen was at 104.22 against the US dollar and had strengthened by more than 13% this year. The Japanese central bank’s decision to introduce negative interest rate for the first time in January might have  expected to drive the yen still lower following four years of declines starting in 2012. The highly liquid currency is considered a safe haven during periods of market turmoil. As such, it first rose early this year when the Chinese markets hit turbulence, and received another boost after the UK’s vote to leave the European Union in June.
The Chinese yuan was at 6.7688 against the US dollar and had weakened by more than 4% YTD. The yuan’s fall since the end of September has prompted renewed suspicion among some in the market of a possible extended slide in the Chinese currency.
The Indian rupee was at 66.82 against the dollar and has weakened by 1% during the year. The rupee lost against the US dollar at the forex market in the wake of increased demand for the American unit amid foreign capital outflows.
Besides the demand from importers and banks, a stronger dollar against currencies overseas because of increased prospects a US interest rate hike and a lower opening in the domestic equity market weighed on the rupee.
The Brazil real was at 3.1127 against the US dollar and had strengthened by more than 21% YTD.
The real led gains in emerging markets as President Michel Temer rallied support for a bill to cap spending and anticipated dollar inflows as a deadline neared for Brazilians to repatriate money from abroad.
The Russian rouble was at 62.24 against the dollar and had strengthened by close to 15% YTD on account of revival in oil prices. The US dollar’s strength symbolises a Fed rate hike and allied impact on rest of the basket currencies.

*Dr R Seetharaman is Group CEO of Doha Bank.
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