Dollar gains before Fed meeting minutes

By Karen Brettell

NEW YORK (Reuters) – The U.S. dollar gained on Wednesday before the Federal Reserve is due to release minutes from its July meeting, and the greenback briefly hit a session high against a basket of currencies after data showed that U.S. consumer spending was steady in July.

Bets that the U.S. central bank will continue to hike rates aggressively to battle inflation have increased since last week, when softer-than-expected inflation in July raised some hopes that price pressures might have passed.

Fed officials are adamant they will keep raising interest rates until high inflation is under control, and the release on Wednesday of the minutes from their July 26-27 policy meeting may shed light on just how aggressive they expect to be.

“Everyone is focused on – well, will we really see the Fed be in a position where they need to deliver more massive rate hikes and can the economy handle it, and right now the economy looks like it can,” said Edward Moya, senior market analyst at OANDA in New York.

U.S. retail sales were unchanged in July as declining gasoline prices weighed on receipts at service stations but consumer spending appeared to hold up, which could further assuage fears that the economy was already in recession.

Looser financial conditions as benchmark 10-year Treasury yields hold below 3% and as the credit and stocks markets improve has also increased speculation the Fed may need to be more aggressive in hiking rates to make an impact.

Fed funds futures traders are currently pricing in a 48% chance of a 50 basis points increase and a 52% probability of a 75 basis points hike.

The dollar index against a basket of currencies was up 0.27% on the day at 106.76. The euro fell 0.10% against the dollar to $1.0161.

The greenback gained 0.67% against the yen to 135.16.

The dollar is being helped by expectations that the Fed will continue to hike rates at a faster pace then peers.

The euro is also being weighed down by economic concerns as the region faces an energy crisis caused by Western sanctions on Russia as a result of its invasion of Ukraine.

The New Zealand dollar fell 0.87%, erasing earlier gains in volatile trading on what was likely profit taking on the original move.

New Zealand’s central bank on Wednesday delivered its seventh straight interest rate hike and signaled a more hawkish tightening path over coming months to rein in stubbornly high inflation, which briefly boosted the currency.

Sterling also faded after an initial jump on data showing that consumer price inflation in Britain rose to 10.1% in July, the highest since February 1982.

The British pound was last down 0.23% on the day at $1.2061.

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Currency bid prices at 9:34AM (1334 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 106.7600 106.4800 +0.27% 11.600% +106.8900 +106.3000

Euro/Dollar $1.0161 $1.0172 -0.10% -10.62% +$1.0187 +$1.0146

Dollar/Yen 135.1600 134.2550 +0.67% +17.41% +135.3800 +133.9100

Euro/Yen 137.34 136.50 +0.62% +5.39% +137.4600 +136.2700

Dollar/Swiss 0.9527 0.9497 +0.32% +4.45% +0.9538 +0.9485

Sterling/Dollar $1.2061 $1.2098 -0.23% -10.75% +$1.2143 +$1.2051

Dollar/Canadian 1.2919 1.2846 +0.59% +2.20% +1.2921 +1.2828

Aussie/Dollar $0.6932 $0.7024 -1.30% -4.63% +$0.7026 +$0.6918

Euro/Swiss 0.9679 0.9656 +0.24% -6.65% +0.9687 +0.9652

Euro/Sterling 0.8422 0.8408 +0.17% +0.26% +0.8426 +0.8390

NZ $0.6283 $0.6343 -0.87% -8.13% +$0.6383 +$0.6275

Dollar/Dollar

Dollar/Norway 9.7335 9.6770 +0.58% +10.48% +9.7340 +9.6625

Euro/Norway 9.8935 9.8293 +0.65% -1.19% +9.9017 +9.8215

Dollar/Sweden 10.4051 10.3332 +0.59% +15.38% +10.4123 +10.3154

Euro/Sweden 10.5735 10.5117 +0.59% +3.32% +10.5785 +10.5050

(Additional reporting by Iain Withers in London; Editing by Mark Potter)