The prospect of yet another exorbitant rate hike during this week’s Federal Reserve meeting on monetary policy helped the dollar rise on Monday, recovering a portion of the sheen it had exhibited earlier in the month.
However, if the Fed indicates that the rate increase pace may moderate as it evaluates the results of its tightening stance, the dollar’s advances may be constrained.
Amid market expectations for a further 75 basis-point rate increase by the Bank of England later this week, sterling was on the back foot against the dollar and the euro.
The Fed is anticipated to boost its target overnight interest rate by 75 basis points (bps), for a total of four consecutive increases, to a range of 3.75% to 4.00%. However, Fed Funds Futures have priced in a 55% chance of a 50-bps rate increase for the December meeting, down from roughly 67%.
The dollar increased 0.8% in midday trading to 148.62 yen against the faltering yen. The dollar gained 2.7% in October, on pace to record its third consecutive monthly win against the yen.
“I think the dollar in general is consolidating. A lot of the news has already been priced into the dollar.”
Amo Sahota, executive director at FX consulting firm Klarity FX in San Francisco
“If the dollar is to make new gains, I think it would be relatively marginal. Generally, the dollar is somewhere in the bend – trying to establish a high, but has not generally done so. Think there is an exhaustion in that trade.”
Amo Sahota
Japan’s finance ministry reported that it had spent a record $42.8 billion on yen-supporting currency interventions this month. The operation, which was backed by another on October 24, was probably brought on by the sharp decline in the yen to a 32-year low of 151.94 to the dollar on October 21.
In comparison to the Swiss franc, the dollar also appreciated, climbing 0.6% to 1.0014 francs.
On the basis of the dollar’s value, the US dollar, meanwhile, was projected to experience a monthly fall of 0.5% in October. It would be only its second fall of the year and its first since May.
To reach $1.1476 against the dollar, the sterling dropped 1.2%. The BoE is expected to announce a 75-basis point increase, despite the persistent pressure on longer-term rate forecasts, according to analysts.
The euro increased 0.5% to 86.16 pence, while the pound decreased in relation to it.
Ben Broadbent, the deputy governor of the Bank of England, recently said that the cost of borrowing projected by investors would hurt the UK economy and expressed skepticism that Britain could engineer a “soft-landing”—a term used in the United States to describe returning inflation to aim without markedly harming the overall economy.
The euro’s value against the dollar decreased by 0.8% to $0.9887. Statistics issued showed that eurozone inflation came in stronger than anticipated at 10.7%, a new record high. The euro scarcely responded.
In other markets, the Chinese yuan plummeted as statistics on Monday revealed that manufacturing activity in China surprisingly decreased in October due to weakening global demand and severe internal COVID-19 limitations.
The last time the dollar and yuan were exchanged offshore at 7.336, the dollar was 0.9% ahead.
While inflation soared to a 32-year high last quarter, the Reserve Bank of Australia (RBA), which tends toward the subdued extreme of the spectrum, is projected to hike interest rates by a relatively moderate 25 bp.
The Australian dollar most recently fell 0.3% to US$0.6392.
When former president Luiz Inacio Lula da Silva resoundingly rejected President Jair Bolsonaro in a run-off election, the U.S. dollar fell more than 2% versus the Brazilian real in the emerging economies region.
Information from Reuters