Dollar climbs slightly as traders assess bets on Fed rate hike

An illustration of U.S. dollars, Swiss francs, pounds sterling and euros banknotes, taken in Warsaw January 26, 2011. REUTERS/Kacper Pempel/File Photo

LONDON, Jan 17 (Reuters) – The dollar edged higher on Monday as traders continued to hold the dollar but felt the Federal Reserve’s tightening plans were broadly priced in, while the euro edged lower. from Friday’s two-month high.

An unexpected drop in key rates in China highlighted it as an outlier, with other major central banks in talks to raise rates. China’s decision weighed on the yuan only briefly.

The US dollar index, which fell sharply last week until Friday’s jump, rose 0.1% to 95.323 at 1340 GMT. The spot Treasury market was closed for a bank holiday on Monday.

“With 3.7 Fed rate hikes forecast for 2022 and 2.3 for 2023, market participants seem to be inferring that the risks to pricing policy are now more balanced,” Goldman Sachs told clients. .

The Fed meets on January 25 and 26 and is not yet expected to change its rates.

Speculators’ net long positions in the US dollar, or bets that the dollar will rise, fell slightly in the week to January 11, but remained near recent highs, suggesting investors want to hold onto the greenback. amid “hawkish Fed rhetoric in recent months,” Rabobank told clients.

“However, the massive selling off of USD in the spot market last week suggests that long positions had become crowded,” Rabobank analysts said.

The euro slipped 0.2% against the dollar to $1.1396, after hitting a two-month high on Friday.

With no major economic data for the Eurozone on the calendar this week, investors will focus on speeches from President Christine Lagarde, other ECB members and the minutes of the December policy meeting of the ECB released Thursday.

European Central Bank President Christine Lagarde said on Friday the bank was ready to take all necessary steps to bring inflation back to its 2% target. Inflation hit 5% last month, the highest on record for the 19-nation currency bloc. Read more

Isabel Schnabel, a member of the ECB’s executive board, said in remarks published on Friday that raising interest rates in the euro zone would not lower energy prices. Read more

Elsewhere, the tightening momentum is accelerating. Even the ultra-dovish Bank of Japan is wondering when to start telegraphing upside plans. Read more

The outlier is China, where a slew of economic data has confirmed the destructive effect of coronavirus-related restrictions on consumer spending, prompting Beijing to ease monetary policy. Read more

The yuan initially faded slightly as government bonds rallied on lower rates, before firming to 6.3490 to the dollar .

The pound slid 0.2% against the dollar to $1.3651, after hitting its highest level since late October last week.

UK inflation data is due on Wednesday.

Reporting by Joice Alves, editing by Ed Osmond and Hugh Lawson

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