September 26, 2022

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The US dollar advances as markets brace for a significant Fed rate hike

The US dollar advances as markets brace for a significant Fed rate hike

US dollar banknotes are shown in front of the stock graph displayed in this illustration taken on February 8, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

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  • Markets in consolidation mode ahead of Fed policy decision
  • Fed Funds futures price has a 21% chance of a 100 basis point hike
  • The Chinese yuan hits a 26-month low against the dollar
  • New Zealand dollar drops to lowest since May 2020

LONDON/NEW YORK (Reuters) – The dollar rose against major currencies on Monday, trading within narrow ranges ahead of a series of central bank meetings this week led by the Federal Reserve, which is likely to raise interest rates again. .

Trade was generally weak, with markets in London and Tokyo closed on public holidays.

Global stock markets remained on edge and the dollar maintained its assertive tone, given expectations that the Federal Reserve would maintain its tight course to contain uncomfortably high inflation.

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“At a high level, the US currency is benefiting from the ongoing selloff in global equities,” said John Doyle, vice president of commerce and dealing at Monex USA in Washington.

“With the Fed’s decision on hold, I think the dollar will continue to take its cues from the general risk sentiment. We don’t think the Fed will raise 100 basis points this week, but the possibility is still real,” he added.

Federal Reserve fund futures have a 79% chance of a 75 basis point rate hike this week and a 21% probability of a 100 basis point increase at the conclusion of the US central bank’s two-day monetary policy meeting, according to Refinitiv data.

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The dollar index, which measures the currency against six peers, rose 0.4% to 109.98, not far from a 20-year high of 110.79 hit on Sept 7.

Dollar maintains strength as markets prepare for Fed rate hike

This week is also filled with holidays that could result in poor liquidity and sharper price moves, with Japan and Britain shut down on Monday, Australia on Thursday, and Japan again on Friday, among others.

In other currencies, the euro was down 0.3% against the dollar at $0.9984, the pound was 0.4% weaker at $1.1386 and within sight of its 37-year lows on Friday, while the New Zealand dollar and the Australian dollar were down 0.8% and 0.5%, respectively. .

The New Zealand dollar fell to its lowest level since May 2020 at $0.5933 and was last seen at $0.5937.

The Canadian dollar fell to its lowest level in almost two years at 1.3324 Canadian dollars per US dollar.

“The drop in oil allowed for a modest rally against commodity-based currencies such as the Canadian dollar,” said Monex’s Doyle.

The dollar was firmer about 0.4% at 143.50 yen, swinging below a strong resistance level at 145 which was boosted by hawkish Japanese policy makers’ talk of currency intervention.

The Bank of Japan is widely expected to commit to massive stimulus at its meeting on Wednesday and Thursday, while maintaining its ultra-loose policy. But a turning point in Japanese monetary policy may come sooner than thought, as the central bank recently dropped the word “temporary” to describe high inflation. Read more

The Chinese yuan closed at a new 26-month low on Monday and traded below the critical 7 per dollar level. In foreign trade, the yuan was 0.35 weaker.

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Bitcoin, the largest cryptocurrency by market capitalization, fell to a three-month low below $19,000 as concern about rising interest rates globally dented risky assets. Read More The last drop was 0.9% at $1,9241.

Ether, the cryptocurrency used in the Ethereum blockchain, is up from a two-month low against the dollar, last up 1.8% on the day at $1,358.

Ethereum underwent a major software upgrade last week that changed the way Ether tokens are generated, drastically reducing its power usage. Read more

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Coin quote prices at 10:34 am (1434 GMT)

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(Reporting by Dara Ranasinghe in London and Gertrude Chavez-Dreyfus in New York; Additional reporting by Kevin Buckland in Tokyo. Editing by Bradley Perrett, Frank Jack Daniel and Paul Simao

Our criteria: Thomson Reuters Trust Principles.