Dollar hits one-month high on lingering chances of Fed hike
By Satoshi Sugiyama
TOKYO, July 28 (Reuters) – The U.S. dollar remained at a one-month high on Tuesday as falling oil prices eased some concerns about inflation and investors bet on a slim but persistent chance of a rate hike at the Fed’s upcoming meeting.
The dollar index, which measures the value of the dollar against a number of currencies including the yen and the euro, decreased by 0.07% to 101.45, while the euro increased by 0.09% to $1.1377. The dollar was trading at 163.73 against the Japanese yen, while the pound sterling rose 0.09% to $1.3299.
Although the pause in U.S. attacks on Iran lowered oil prices and eased inflation concerns somewhat, U.S. Treasury yields suffered only a modest decline compared with overnight movements in other markets.
“The lack of meaningful buying at the front end of the Treasury bond curve has helped keep the U.S. dollar well supported,” said Chris Weston, head of research at Pepperstone.
The Fed will hold a two-day policy meeting ending Wednesday. A growing number of major brokerages believe there is a real risk the Fed will raise interest rates this week, given the rise in oil prices during the month and rising tensions in the Middle East.
Expectations for a rate hike of at least 25 basis points in the Fed’s policy announcement are pegged at 37.9%, up from 16% a week ago, according to CME FedWatch. Markets are pricing the chance of an interest rate hike at almost 81% at the central bank’s September meeting.
“If we get a surprise rise, that will certainly support the dollar, possibly hit new highs and probably maintain the dollar’s level of strength, particularly against lower yielders like the Japanese yen and the Swiss franc,” Mahjabeen, head of foreign exchange research at ANZ Bank, said in a podcast.
Investors will also look to second-quarter U.S. GDP data and core PCE inflation, the Fed’s preferred inflation gauge, this week for more clues about the health of the world’s largest economy.
In other major currencies, the Australian dollar weakened 0.11% to $0.6981 against the US dollar as Australia’s central bank chief Michele Bullock said headline inflation remained too high and a further slowdown in domestic demand may be needed to rein in prices. The New Zealand kiwi was traded at $0.5772.
COMMUNITY CENTRAL BANK WEEK
The Bank of England and the Bank of Japan are expected to keep interest rates unchanged and maintain their cautious stance on inflation at their meetings on Thursday and Friday, respectively.
With the yen pegged near last week’s 40-year lows against the dollar, the BOJ is expected to leave the door open to further interest rate hikes to stem the currency’s slide, but policymakers are likely to remain uncertain about the pace and timing of moves. Vocal efforts to support the Japanese currency have so far yielded muted results.
