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US dollar advances as Fed seen concluding asset buys sooner than expected

US dollar advances as Fed seen concluding asset buys sooner than expected

FILE PHOTO: A picture illustration shows U.S. 100-dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

NEW YORK :The dollar rose on Monday ahead of a slew of central bank meetings this week led by the Federal Reserve, with investors expecting the U.S. central bank to announce it will wrap up its bond purchases sooner than expected, as they look for clues on timing of interest rate increases next year.

Aside from the Fed, the European Central Bank, Bank of Japan, Bank of England, Swiss National Bank, and Norges Bank, among others, all have policy decisions in the next few days.

The euro fell, as it is seen as vulnerable to a U.S. rate hike given expectations that the Fed will tighten policy more quickly than the dovish ECB.

The dollar index, which measures the greenback against six major peers, was up 0.2per cent at 96.297. The euro was down 0.2per cent at US$1.1291.

Against the yen, the dollar was up 0.1per cent at 113.49 yen.

"The market has priced in the Fed concluding its bond tapering in Q1 and expects the central bank to put a rate hike firmly on the table by early summer," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

"Whether the dollar has any juice left to rally could hinge on how many times the Fed expects to raise rates next year. A Fed that signals little tolerance for higher inflation would strike a resoundingly hawkish note and likely keep the dollar biased higher," he added.

Some analysts, however, believe the dollar's march higher in recent weeks has already factored in many of its possible sources of strength in the short term.

That said, if the Fed forecasts 2022 inflation rates above 3 percent, or if the 2023 projection jumps, "dollar bulls will stampede," noted Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

"If the dots show more than two rate hikes in 2022, the front-end of the yield curve will rise, taking the greenback with it."

The pound dipped 0.4per cent to US$1.3216 after Prime Minister Boris Johnson said on Sunday Britain faced an Omicron "tidal wave." On Monday he said at least one person has died in the UK due to the latest variant.

The Swiss franc was down versus the dollar, which was last up 0.1per cent at 0.9219 francs, while the euro was down 0.1per cent at 1.0409 francs.

Moves in the franc came as the Swiss National Bank's sight deposits rose last week by their highest amount in seven months, indicating policymakers are taking the first steps to battle a rise in the value of the franc against major rivals, particularly the euro.

The SNB, which has been battling the appreciation of the franc since the start of the pandemic, is due to make its latest interest rate decision on Thursday.

In cryptocurrencies, bitcoin fell to a two-week low of US$45,750 and was last down 7.2per cent at US$46,500, after hitting levels above US$50,000 on Sunday. Ether, the token linked to the Ethereum blockchain, dropped 9.8per cent to US$3,747.

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Currency bid prices at 2:58 PM (1958 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 96.3080 96.1040 +0.22per cent 7.031per cent +96.4500 +96.0800

Euro/Dollar US$1.1289 US$1.1316 -0.24per cent -7.60per cent +US$1.1319 +US$1.1261

Dollar/Yen 113.5200 113.3950 +0.09per cent +9.85per cent +113.7200 +113.3000

Euro/Yen 128.14 128.30 -0.12per cent +0.96per cent +128.4500 +128.0200

Dollar/Swiss 0.9221 0.9207 +0.12per cent +4.19per cent +0.9256 +0.9200

Sterling/Dollar US$1.3218 US$1.3271 -0.38per cent -3.23per cent +US$1.3268 +US$1.3209

Dollar/Canadian 1.2795 1.2725 +0.55per cent +0.48per cent +1.2820 +1.2710

Aussie/Dollar US$0.7135 US$0.7174 -0.54per cent -7.25per cent +US$0.7176 +US$0.7111

Euro/Swiss 1.0409 1.0421 -0.12per cent -3.68per cent +1.0430 +1.0404

Euro/Sterling 0.8540 0.8529 +0.13per cent -4.44per cent +0.8550 +0.8501

NZ US$0.6756 US$0.6799 -0.61per cent -5.90per cent +US$0.6868 +US$0.6747

Dollar/Dollar

Dollar/Norway 9.0395 8.9450 +1.07per cent +5.29per cent +9.0740 +8.9850

Euro/Norway 10.2052 10.1150 +0.89per cent -2.50per cent +10.2354 +10.0990

Dollar/Sweden 9.0889 9.0463 +0.16per cent +10.89per cent +9.1096 +9.0512

Euro/Sweden 10.2610 10.2448 +0.16per cent +1.83per cent +10.2758 +10.2248

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Stefano Rebaudo in Milan; Editing by Mark Heinrich and Dan Grebler)

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