US Dollar Weakens Ahead of Fed’s Rate Hike
The dollar index (DXY) was down slightly on Friday but registered a gain for the week as investors expected the U.S. Federal Reserve to remain aggressive when it hikes interest rates next week.
Meanwhile, China’s Yuan eased past the key threshold of 7 per dollar as Beijing’s fresh lockdowns threaten strong output. Fitch Rating already cuts global gross domestic product growth for 2022 to 2.4% amidst the disruption that follows Russia-Ukraine war.
The United States dollar mostly held a slight gain following U.S. data showing consumer sentiment improved moderately in September.
The University of Michigan’s preliminary September reading on the overall index on consumer sentiment came in at 59.5, up from 58.6 in the prior month. Economists polled by Reuters had forecast a preliminary reading of 60.0 in September.
The dollar, DXY, measured against a basket of currencies, declined 0.1% on the day to 109.68. It reached a two-decade high of 110.79 earlier this month. For the week, it was up 0.6%, and it is up about 15% for the year so far.
“This belief that we’re very close to a peak dollar, very close to peak yields,… is getting pushed back. We’re seeing a lot of strong bullish dollar calls,” said Edward Moya, senior market analyst at Oanda in New York. READ: Dollar Weakens, Downside Risks Spotted on Euro
“That positioning will probably be strongly reflected post-FOMC next week.” Investors expect a high chance of a 75-basis-point rate hike at next week’s meeting and some chance of a 100-bps increase. Earlier, the rising dollar pushed the offshore yuan past the critical threshold of 7 per dollar for the first time in more than two years overnight.
Sterling fell against the dollar to a new 37-year low of $1.1351 and was last down 0.5% at $1.1416, while the euro was up 0.1% at $1.0008. British retail sales fell much more than expected in August, another sign that the economy is sliding into a recession as the cost of living crunch squeezes households’ disposable spending.
While the Fed takes centre stage next week, the Bank of Japan (BOJ) and the Bank of England are also expected to have monetary policy meetings. The dollar was 0.4% lower against the yen at 142.87 but was up 0.2% for the week in its fifth straight week of gains.
“With the risk of the Fed that possibly could go a full point on Wednesday and with the Japanese holiday on Monday … you’re probably going to see a little bit more patience in deciding when to make a move,” Moya said. “Any intervention now could be crushed by a Fed decision.”
#US Dollar Weakens Ahead of Fed’s Rate Hike#
