Dollar edges higher against major peers as investors eye Fed rate cut

By Chibuike Oguh and Greta Rosen Fondahn

NEW YORK/GDANSK (Reuters) -The U.S. dollar edged higher against major currencies in choppy trading on Monday, as investors eyed interest rate decisions from the Federal Reserve, Bank of Japan, Bank of England and other key central banks this week.

Markets are pricing in a near 97% chance that the Fed will deliver a quarter-point interest rate cut at the end of its policy meeting on Wednesday, according to CME’s FedWatch tool. The yield on benchmark U.S. 10-year notes fell 0.8 basis points to 4.391%.

“The U.S. dollar has been at the mercy of headlines not only just surrounding what the Fed is going to do but whether it’s going to be deemed a hawkish cut,” said Juan Perez, director of trading at Monex USA in Washington, D.C.

“We think they are going to be cutting and will also be highlighting the fact that the economy and inflation are still part of the overall picture and they’re likely going to have to slow down on interest rate cuts.”

The dollar strengthened 0.16% to 0.8945 against the Swiss franc, hovering near its highest level since July. Against the Japanese yen, the dollar strengthened 0.31% to 154.12, after rising as high as 154.480 for the first time since Nov. 26.

The yen has struggled to rebound against the greenback following its largest weekly slide since September after Reuters and other news outlets reported the Bank of Japan was likely to keep interest rates steady at the end of its policy meeting on Thursday.

The euro rallied in choppy trading after German chancellor Olaf Scholz lost a parliamentary confidence vote, paving the way for snap elections in February. The euro was last up 0.07% at $1.0509.

The decline in euro zone business activity eased this month, a survey showed, while European Central Bank President Christine Lagarde said on Monday the ECB will cut interest rates further if inflation continues to ease towards its 2% target.

The U.S. dollar index – which tracks the currency against six others – was up slightly at 106.88, after rising as high as 107.16 on the session. The index had hit 107.18 on Friday, its highest since Nov. 26.

Sterling was up 0.60% to $1.26845, after it lost ground on Friday to its lowest point since Nov. 27, when data showed a surprise economic contraction in the British economy.

A survey of business activity pointed to a rise in prices in Britain on Monday. The Bank of England is due to announce a policy decision just hours after the BOJ. Other central banks announcing rate decisions this week include Sweden’s Riksbank and Norway’s Norges Bank.

“When you look at how the dollar has performed, not only do you have a Fed that’s kind of in a corner, but you also have a lot of major central banks going the other way with their own individual stories: the Bank of Canada just cut, the Swiss National Bank cut, more-than-expected ECB cut,” said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey.

“Ultimately, there isn’t that much that can reverse the maintenance of the current strength of the dollar.”

Bitcoin hit a record high above $106,000 after President-elect Donald Trump suggested he plans to create a U.S. bitcoin strategic reserve similar to its strategic oil reserve, stoking the enthusiasm of crypto bulls.

Trump’s comments came in an interview with CNBC late last week and echoed other statements made during his successful presidential campaign, which was seen as positive for the crypto industry. Bitcoin surged as high as 107,821 on Monday. It was last up 4.6% at $106,003.

(Reporting by Chibuike Oguh in New York, Kevin Buckland and Greta Rosen Fondahn; Editing by Alex Richardson, Kirsten Donovan, Andrew Heavens and Ken Ferris)