Dollar near 18-month high ahead of bumper central bank week

By Alun John

HONG KONG (Reuters) – The greenback was close to a year-and-a-half excessive in opposition to the euro on Monday with equities markets volatility anticipated to push it larger within the short-term as merchants eyed upcoming Australian, UK and European central financial institution conferences.

The euro was at $1.1148, simply off final Friday’s low of $1.1119, its weakest since June 2020. The Aussie greenback was at $0.6991, additionally languishing close to Friday’s 18-month low, whereas sterling was at $1.34015, close to the one-month low hit final week.

The buck had its finest week in seven months final week supported by buyers in search of security amid a sell-off in riskier property and by analysts elevating forecasts for U.S. rate of interest hikes.

MSCI’s 50-country most important world index is headed for its worst month for the reason that begin of the pandemic. [MKTS/GLOB]

Market pricing now suggests a greater than 90% probability of a minimum of 4 fee hikes by the top of the 12 months and a 67% probability of a minimum of 5.

“The USD ‘smiled’ once more, drawing on a mixture of charges repricing and far weaker danger sentiment,” mentioned analysts at Barclays.

Wanting ahead, they mentioned weak and unstable equities might help the greenback however the potential for additional greenback features primarily based on fee hike expectations was restricted, as final week’s strikes imply an “aggressive normalisation cycle” is now priced in.

The greenback index, which measures the buck in opposition to six main friends was at 97.205, just under Friday’s 18-month prime of 97.441.

The yen was at 115.23 per greenback, in the course of its latest vary, buffeted by the headwind of rising U.S. charges with little prospect of fee hikes at residence, however supported by some demand for it as a safe-haven.

Whereas U.S. payroll figures are out on Friday, the main target this week shifts a bit of away from the Fed to different central banks.

Australia-watchers await the central financial institution’s Tuesday assembly, amid rising expectations for an announcement for the top of its quantitative easing programme. That might be adopted by a as speech by the RBA’s governor on Wednesday and an announcement on financial coverage Friday.

The week “will go far to outline the psychology of the marketplace for the following few months,” mentioned Westpac analysts. “That QE will stop is not going to be a shock, so the actual focus is on the RBA’s shifting financial view and its implications for the (benchmark) money fee.”

The Financial institution of England additionally has a gathering on Thursday, with a Reuters ballot of economists predicting a second fee hike in lower than two months, because the BOE reverses extra pandemic stimulus, after inflation jumped to its highest in almost 30 years.

The European Central Financial institution additionally has a coverage assembly Thursday. Whereas no coverage change is anticipated, analysts are beginning to warn that approaching fee hikes from the Fed will shrink the ECB’s window for motion.

In cryptocurrencies, bitcoin was at $37,700, after a quiet weekend for the digital asset.

(Reporting by Alun John; Modifying by Sam Holmes)