U.S. dollar advances as markets brace for hefty Fed rate hike

US one dollar banknotes are seen in front of the displayed stock chart in this illustration dated February 8, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

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  • Markets in consolidation mode ahead of Fed policy decision
  • Fed fund futures price a 100 basis point hike with a 21% probability
  • The Chinese yuan hits a fresh 26-month low against the dollar
  • The New Zealand dollar falls to its lowest level since May 2020

LONDON/NEW YORK, Sept 19 (Reuters) – The dollar strengthened against major currencies on Monday, moving in tight ahead of a series of central bank meetings this week led by the Federal Reserve, which is likely to bring another sharp hike in interest rates bandwidths traded.

Trading was generally subdued as markets in London and Tokyo were closed on public holidays.

Global equity markets remained jittery and the dollar kept its tone firm on expectations that the Fed would maintain its aggressive tightening path to stem uncomfortably high inflation.

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“At high levels, the greenback is benefiting from an ongoing sell-off in global equities,” said John Doyle, vice president of trade and trading at Monex USA in Washington.

“Pending the Fed’s decision, I think the dollar will continue to be guided by overall risk sentiment. We don’t think the Fed will rise 100 basis points this week, but the potential is still real,” he added.

Fed fund futures have priced a 79 percent chance of a 75 basis point rate hike this week and a 21 percent chance of a 100 basis point hike at the end of the Federal Reserve’s two-day policy meeting, according to Refinitive data.

The dollar index, which measures the currency against six counterparts, rose 0.4% to 109.98, not far from a 20-year high of 110.79 hit on September 7th.

Dollar remains strong as markets brace for another aggressive Fed rate hike

This week is also dotted with bank holidays which could thin liquidity and lead to more price action including Japan and the UK on Monday, Australia on Thursday and Japan again on Friday.

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Elsewhere, the euro was down 0.3% against the dollar to $0.9984 and the pound sterling was down 0.4% to $1.1386 and within sight of Friday’s 37-year low, while New Zealand and the Australian dollar fell 0.8% and 0.5% respectively.

The New Zealand dollar fell to $0.5933, its lowest since May 2020 and last traded at $0.5937.

The Canadian dollar fell to its lowest level in almost two years at C$1.3324 per US dollar.

“The decline in oil prices has enabled a modest recovery against commodity-based currencies like the Canadian dollar,” Monex’s Doyle said.

The dollar was some 0.4% higher at 143.50 yen, hovering below a strong resistance level at 145 reinforced by intensified talks by Japanese politicians over currency intervention.

The Bank of Japan is widely expected to stick to massive stimulus and maintain ultra-loose policy at Wednesday and Thursday meetings. But a turning point in Japanese monetary policy may come sooner than thought, as the central bank recently dropped the word “temporary” to describe elevated inflation. Continue reading

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China’s yuan closed at a fresh 26-month low on Monday, trading below the psychologically critical 7 per dollar level. In offshore trade, the yuan was weaker 0.35.

Bitcoin, the largest cryptocurrency by market value, fell to a three-month low below $19,000 as concerns about rising interest rates weighed on risk assets around the world. Read More It was last down 0.9% to $19,241.

Ether, the cryptocurrency used on the Ethereum blockchain, rebounded from a two-month low against the dollar and was last up 1.8% on the day to $1,358.

Ethereum went through a major software upgrade last week that is changing the way Ether tokens are created and drastically reducing energy consumption. Continue reading

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Currency bid prices at 10:34 (1434 GMT)

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Reporting by Dhara Ranasinghe in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Kevin Buckland in Tokyo; Edited by Bradley Perrett, Frank Jack Daniel and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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