FOREX-Dollar finds footing as traders brace for hawkish Fed

Band Tom Westbrook

SYDNEY, January 17 (Reuters)The dollar latched on to a weekend rebound on Monday as investors braced for January’s U.S. Federal Reserve meeting and raised bets it will chart a year ahead containingg several rate increases, while China cut borrowing costs to support a faltering economy.

A The Bank of Japan meeting which ends on Tuesday, UK inflation data on Wednesday and Australian jobs figures on Thursday are also in sight as traders assess the outlook for global policy.

An unexpected drop in some key rates in China highlighted it as an outlier, although it only weighed on the yuan briefly.

The dollar was up 0.3% at 114.47 yen JPY=EBS at the end of the Asian session, about 0.8% above Friday’s low. It also slightly strengthened the euro EUR=EBS at $1.1421.

The moves follow a jump in yields and the dollar on Friday and underscore the greenback’s support against the hawkish rate outlook, even as earnings momentum has started to falter.

The US dollar index =USDwhich fell sharply last week until Friday’s jump, stood at 95.225 in Asia on Monday.

“Friday’s move suggestss to me that the interest rate driver for dollar strength is not dead and buried,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank.

He said he wouldn’t necessarily come back to drive new dollar highs, but esteemed traders were on their toes. “We’ve had a hawkish spin at every Fed meeting since June of last year,” he said.

The Fed meets Jan. 25-26 and is not expected to change rates, but there is a growing drumbeat of hawkish comments from inside and outside the central bank.

Last week, JP Morgan CEO Jamie Dimon remarked that there could be “six or seven” hikes this year and billionaire hedge fund manager Bill Ackman tweeted over the weekend about the rise. possibility of an initial hike of 50 basis points to control inflation.

The cash Treasury market was closed for a bank holiday on Monday, but 10-year futures TNc1 were sold at a two-year low in Asia and fed funds futures 0#FF: fell, reflecting a strengthening of market conviction of at least four bulls in 2022.


Pulling against dollar gains is impetus for tightening almost everywhere else too, with Reuters reporting last week that even the ultra-dovish Bank of Japan is debating when to start telegraphing upside plans.

Wednesday’s inflation data could also help extend a month-long rally in sterling GBP=D3 after stalling around its 200-day moving average last week. It stood at $1.3669 on Monday.

“Interest rate markets are currently pricing in an 80%+ chance of a 25 basis point rate hike by the Bank of England on February 3,” said Commonwealth Bank of Australia strategist Joe Capurso. .

“A faster pace of inflation could push prices closer to 100 percent.”

The outlier is China, where Monday’s growth data confirmed coronavirus restrictions were dragging on consumption and policymakers also announced a surprise cut in borrowing costs.

The People’s Bank of China (PBOC) said it was lowering the interest rate on $110 billion in one-year medium-term loans by 10 basis points, surprising analysts who now believe it is a harbinger of more to come.

“We could see more and that could, over time, help stabilize the Chinese economy and it could support commodity-linked currencies,” said Bank of Singapore strategist Moh Siong Sim.

The yuan initially faded slightly as government bonds rallied on lower rates, before firming around 0.1% to 6.3450 to the dollar. CNY=CFXS. CNY/

The Australian and New Zealand dollars, which fell sharply on Friday, remained under pressure. Aussie AUD=D3 hovered around Friday’s low at $0.7200 and the kiwi USD=D3 around $0.6798. EUR/

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(Reporting by Tom Westbrook; Editing by Jacqueline Wong and Ana Nicolaci da Costa)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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