Dollar robust as Fed headlines big week for central banks

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LONDON – The dollar held steady near two-decade highs against other major currencies on Monday, biding its time ahead of a series of central bank meetings that will include one from the U.S. Federal Reserve that is likely which produces another sharp rise in rates.

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

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Still, the dollar held steady on expectations that the Fed would maintain its aggressive rate hike path to contain uncomfortably high inflation.

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The dollar index, which measures the currency against six peers, was 0.4% stronger at 110.06, returning to a 20-year high of 110.79 on 7 September.

“There was some talk a while ago that the Fed was about to end rate hikes, but that was premature,” said Nordea chief analyst Jan von Gerich. “The Fed is not about to finish and that supports the dollar.”

As last week’s data showed a pick-up in underlying U.S. consumer price hikes, markets have weighed in on the possibility of a 100bp 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 100bp increase.

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

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The euro was down 0.4% at $0.9972, sterling was down 0.3% at $1.1390 ​​and kept within sight of Friday’s 37-year lows, while the New Zealand and Australian dollars were down more than 0.5% each.

Markets are divided over whether the Bank of England will raise interest rates by 50 or 75 basis points on Thursday. Monetary tightening could clash with Britain’s new finance minister Kwasi Kwarteng’s emergency mini-budget, which is expected on Friday and is likely to give more details on support to help ease the country’s cost-of-living crisis.

The Canadian dollar in early European trade 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, falling below a strong resistance level at 145 that has been bolstered by Japanese policymakers’ tightening on the intervention of the currency

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The BOJ is expected to maintain massive stimulus at its meeting on Wednesday and Thursday, maintaining its ultra-loose policy. But a turning point in Japanese monetary policy may be coming sooner than previously thought, with the central bank recently abandoning the word “temporary” to describe high inflation.

China’s yuan remained on the weaker side of 7 per dollar as economic worries and the possibility of more benchmark interest rate cuts loomed on Tuesday.

Bitcoin, the largest cryptocurrency by market value, fell to a three-month low below $19,000 as jitters over rising interest rates globally weighed on risk assets.

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