Dollar Trades Stronger as Market Focus on FOMC Meeting
The United States (U.S) dollar is stronger against its major trading partners early Monday ahead of a light data schedule as markets look ahead to this week’s Federal Open Market Committee (FOMC) meeting.
Federal Reserve officials stay in the quiet period until Thursday after its hawkish poise drive US Treasury yields upward with dollar slowdown against major currencies.
Analysts expect the FOMC’s post-meeting statement Wednesday to signal a possible rate hike in March after the tapering of asset purchases is completed. Twice a year interest rate hike is expected in 2022.
The only US data releases scheduled for Monday are the Chicago Fed National index for December and the IHS Markit flash estimates for manufacturing and services for January.
The data schedule picks up after that, including home prices and consumer confidence on Tuesday, new home sales on Wednesday, initial jobless claims and the first look at Q4 GDP on Thursday, and personal income and spending on Friday.
A quick summary of foreign exchange action heading into Monday shows that USD-JPY rose to 113.7586 from 113.6968 at the Friday US close but stands well below the 114.4637 level a week ago.
The January flash PMI for Japan was mixed, with the manufacturing reading higher but the services reading lower due to rising COVID-19 cases. Tighter restrictions were implemented at the end of the last week that could impact the services sector further.
USD-CAD rose to 1.2622 from 1.2581 at the Friday US close and 1.1517 a week earlier. The Bank of Canada will meet on Wednesday in addition to the Fed, with market participants expecting a rate increase from the BOC as the first of many in 2022.
There are only a few minor Canadian data releases before the meeting so a bias toward tightening is likely to remain priced into the markets. GBP-USD slipped to 1.3484 from 1.3555 at the Friday US close and 1.3662 a week ago.
The flash PMI readings for the UK declined for January, compared with expectations for small gain for manufacturing and services. Markets are widely expecting a rate increase at the Bank of England’s meeting on Feb. 3 as a protection against rising prices and wages.
BOE Governor Andrew Bailey said on Jan. 19 that it will take longer for inflation pressure to subside than previously expected EUR-USD fell to 1.1303 from 1.1343 at the Friday US close and well below the 1.1416 level a week ago.
Flash aggregate manufacturing and services readings for the EU were mixed, with the manufacturing index higher, but the services reading lower as COVID-19 cases stay high, prompting tighter restrictions and civil unrest in some countries.
The European Central Bank’s monetary policy council meets on Feb. 3, the same day as the BOE. # Dollar Trades Stronger as Market Focus on FOMC Meeting … Read: Dollar Falls on Fed’s Decision to Accelerate Asset Purchase Tapering
