Dollar robust as Fed signals big week for central banks

U.S. one dollar banknotes are seen in front of the stock market chart displayed in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

LONDON, Sept 19 (Reuters) – The dollar held near its highest level in two decades against other major currencies on Monday, biding its time ahead of a series of central bank meetings, including one by the U.S. Federal Reserve. who should organize another one. sharp rise in interest rates.

Trade was generally subdued, with markets in London and Tokyo closed for public holidays.

Still, the dollar maintained its firm tone, given expectations that the Fed would maintain its aggressive rate-hike path to contain uncomfortably high inflation.

The dollar index, which measures the currency against six peers, was up 0.4% at 110.06, heading back towards a 20-year high of 110.79 hit on September 7.

“A while ago there was talk that the Fed was about to end rate hikes, but it was premature,” said Nordea chief analyst Jan von Gerich. “The Fed is not nearly done and that is supporting the dollar.”

Given that last week’s data showed a widening of underlying U.S. consumer price increases, markets priced in the possibility of a 100 basis point rate hike when the Fed concludes its two-day meeting on Wednesday. Markets are fully pricing in a 75 basis point Fed rate hike this week and a roughly 20% chance of a 100 basis point hike. Read more

This week is also littered with holidays that could reduce liquidity and lead to bigger price moves, with Japan and Britain off Monday, Australia on Thursday and Japan back on Friday, among others.

The euro was down 0.4% at $0.9972, the pound slid 0.3% to $1.1390 ​​and kept Friday’s 37-year lows in sight, while dollars New Zealand and Australian fell more than 0.5% each.

Markets are split on whether the Bank of England will raise interest rates by 50 or 75 basis points on Thursday. The monetary tightening could clash with new UK Finance Minister Kwasi Kwarteng’s emergency mini-budget, which is due on Friday and is likely to give more details on support to help ease the cost of living crisis in the country. Read more

The Canadian dollar in early European trading fell to its lowest level in nearly two years at 1.3311 per US dollar.

The Dollar was also 0.4% firmer at 143.46 Yen, hovering below a strong resistance level at 145 which was bolstered by Japanese policymakers’ tougher talk of monetary intervention.

The BOJ is expected to stick to massive stimulus at its Wednesday-Thursday meeting, keeping its ultra-loose policy in place. But a turning point in Japanese monetary policy could come sooner than previously thought, with the central bank recently dropping the word “temporary” from its description of high inflation. Read more

The Chinese yuan held at a low of 7 to the dollar as economic worries and the possibility of further benchmark interest rate cuts loomed on Tuesday.

Bitcoin, the largest cryptocurrency by market value, fell to a three-month low below $19,000 as unease over rising interest rates globally hit assets at risk. Read more

Reporting by Dhara Ranasinghe; Additional reporting by Kevin Buckland in Tokyo; Editing by Bradley Perrett

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