LONDON - The dollar held near a 20 year high on Monday as the euro struggled around the $1.05 mark as investors prepared for a busy week of central bank meetings including a likely Federal Reserve interest rate hike.
Markets in Asia and London were closed for public holidays, so trading was quiet.
The uncertainty surrounding the decision is how hawkish Fed Chair Jerome Powell will sound in comments after the decision, and investors are expecting the Fed to hike rates by 50 basis points when it meets.
Markets are pricing in a run of rate hikes from the Fed as it tries to tame the soaring inflation.
Along with an expected slower rate of European Central Bank tightening and worries about the impact of the war in Ukraine on the euro zone economy, it has sent investors scrambling for dollars and left the euro at levels last seen in 2017 despite the fact that it's expected to be much slower.
The dollar index gained 5% in April, its best month since January 2015, and gained 5% in April.
We expect the USD to stay strong versus the EUR, as a hawkish FOMC Federal Open Market Committee stance and geopolitical concerns will support the USD. Short-term investors may try to sell rallies in EURUSD above $1.08, according to Thomas Flury, strategist and Brian Rose, senior U.S. economist at UBS Global Wealth Management.
They lowered their euro dollar forecasts to $1.05 for June from $1.11, $1.06 for September, $1.08 for December and $1.10 for March 2023.
The dollar index was down a bit last year, down 103.19 at the end of the day. The euro was up 0.1% at $1.0555.
BNP Paribas said last week that big speculative flows and not concerns about a worsening economic outlook have caused the euro's slide to a five-year low below $1.05 this week.
The dollar gained a half a percent on the Chinese yuan in offshore markets, reaching 6.6895 and just below its strongest since late 2020.
The pound fell by 0.1% to $1.2569, while Japan's yen was down against the dollar at 130.16, but off recent lows.
The Bank of England is expected to raise rates by 25 basis points to 1% this week, as well as other central bank meetings this week.
The Australian and New Zealand dollars were initially falling sharply in Asian hours as a selloff on Wall Street undermined risk appetite and overshadowed the prospect of higher interest rates at home.
By 0715 GMT the Aussie had bounced off three month lows and was last at $0.7060, unchanged on the day.
The Australian dollar dropped 5.7% last month as fears of a recession in Europe and lockdowns in China undermined risk assets.
The kiwi dollar was at its lowest since mid-2020, at $0.6422, having lost 6.9% in April.