Dollar falls to 114.45 as traders await Fed meeting

194
3
Dollar falls to 114.45 as traders await Fed meeting

The dollar fell to 114.45 on Monday as investors waited for January's U.S. Federal Reserve meeting and raised bets that it will chart a year ahead of rate hikes, while China surprised analysts with a benchmark cut. Chinese economic growth data, due later on Monday at a Bank of Japan policy meeting that ends on Tuesday, British inflation data on Wednesday and Australian jobs figures on Thursday are also in view as traders gauge the global policy outlook. The dollar was a 0.2% increase at 114.45 yen early in the Asia session, about 0.8% above a Friday low. It was about 0.1% firmer on the euro to $1.1403. The moves follow the dollar's jump on Friday along with U.S. yields and underscore support for the dollar from the hawkish rates outlook, even though momentum for gains has started to wane. The U.S. dollar index, which declined sharply last week until Friday's leap, was at 95.225 in Asia on Monday. Friday's move suggests that the interest rate driver for dollar strength is not dead and buried, said Ray Attrill, head of foreign exchange strategy at the National Australia Bank. He said that it may not necessarily return to drive new dollar highs, but he added that we've had a hawkish twist out of every Fed meeting since June last year. The Fed meets Jan. 25 -- 26 and is not expected to change rates, but there is a growing drumbeat of hawkish comments from within and outside the central bank. Last week, J.P. Morgan CEO Jamie Dimon said there could be six or seven hikes this year, and billionaire hedge fund manager Bill Ackman floated on Twitter over the weekend the possibility of an initial 50 basis point hike to tame inflation. The cash Treasury market was closed for a holiday on Monday but 10 year futures were sold to a two-year low and Fed funds futures fell, reflecting a strengthening conviction in the market of at least four hikes in 2022. The Australian and New Zealand dollars, which fell sharply on Friday, remained under pressure on Monday. The Aussie was down 0.22% at $0.7200, ending for now a brief foray above resistance around $0.7276. The kiwi fell 0.2% to $0.6791. In China, bonds rallied and the yuan dropped after the central bank cut borrowing costs for medium-term loans for the first time since April 2020, defying market expectations. Ten-year government bond futures rose to their highest since June 2020, after the move and the yuan began onshore trade marginally softer at 6.3555 per dollar. Chinese gross domestic product figures due at 0200 GMT are expected to show its slowest growth in 18 months, as demand declines due to the property downturn. A month-long rally for sterling has petered out around its 200 day moving average. It was held at $1.3669 on Monday, but analysts say it could resume gains if inflation data makes the case for higher interest rates. Interest rate markets are now pricing an 80% chance of a 25 bp rate hike by the Bank of England on 3 February, said Joe Capurso, Commonwealth Bank of Australia strategist. Pricing could move closer to 100% with a faster inflation rate.