Representations of the Litecoin, Bitcoin, Etherum and Ripple virtual currency are seen on a PC motherboard in this illustration picture, February 14, 2018. REUTERS Dado Ruvic Illustration
HONG KONG, January 24, Reuters - The dollar traded steady on Monday ahead of the U.S. Federal Reserve's January policy meeting later this week, while the dollar was bruised near a six month low over the weekend, hurt by a sell-off in technology stocks.
Markets were put on the leash by the Fed. And this week, it will be another tug and yank, said Frederic Neumann, HSBC's co-head of Asian economics research, in a morning note.
Attempts to predict when and how quickly central banks will raise interest rates and conclude stimulus programmes when COVID 19 hits are a major factor driving currency markets at present.
He said that he was not expecting a policy change, but that is what will spur investors to scurry about, as Chair Powell might give a speech at his press conference on quantitative tightening later in 2022.
The Fed's Federal Open Market Committee kicks off its two-day meeting on Tuesday with some analysts saying it is possible, but unlikely, that it will raise interest rates for the first time since the pandemic began.
We consider the higher risk as the FOMC statement portrays an urgency to act soon, likely in March, in the face of very high inflation. In a note from Commonwealth Bank of Australia, analysts said that the urgency could culminate in a decision to stop quantitative easing by mid-February.
A bullish statement and or a faster end to the QE programme could encourage markets to price a risk of a 50 bps hike in March, they said, because they thought this would lead to a knee-jerk reaction higher in the dollar.
The dollar index, which measures the dollar against six major peers, was steady at 95.682 on Monday morning.
The Bank of Canada's January meeting, which ends up just before the Fed, where a rate hike is a possibility, and Australian inflation data due Tuesday, which will guide the Reserve Bank of Australia's position at its meeting next month, is also on the traders' agenda this week.
The Aussie dollar was at $0.7180 on Monday morning, the lowest end of its recent range. Late last week, the risk-friendly currency sold off as traders dumped assets like equities and even riskier assets like cryptocurrencies.
It had fallen 10% on Friday and dropped as low as $34,000 on Saturday, its lowest level since July 2021, as it fell to $36,026, its lowest level since July 2021.
The world's largest criptome has halved its value since November's record peak of $69,000.
The world's second-largest criptocurrency hit its lowest level since July on Saturday, which was $2,300, and the sell-off hurt most digital assets.
As institutional investors increase their exposure to cryptocurrencies, their moves are more closely correlated with other risk assets, according to traders.
The Nasdaq Composite IXIC lost 7.55% last week, its worst week since March 2020.
In traditional currency markets, sterling was near a two-week low of $1.3551 and the euro was at $1.1333.
The yen was at the stronger end of its recent range, with a dollar at 113.7 yen not far from the 113.47 touched 10 days earlier. A fall below that level would be a five-week low for the dollar.