Dollar steady as week of key central bank decisions kicks off

Dollar steady as week of key central bank decisions kicks off

By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The U.S. dollar held steady against a basket of currencies on Monday, hovering near a six-month high as traders looked ahead to interest rate decisions this week from the Federal Reserve, the Bank of England and the Bank of Japan.

Currency moves were largely muted on Monday as investors were hesitant to make big directional wagers ahead of the week’s slew of central bank interest rate decisions.

“The plethora of event risk and central bank meetings coming up is keeping a lid on volatility, and with traders really not wanting to chase moves or take on significant risk before the FOMC, BoE, BoJ, etc.,” Michael Brown, market analyst at Trader X, said.

The U.S. dollar index – which measures the currency against six major counterparts – was about flat at 105.25, not far from the six-month high of 105.43 touched on Thursday. The index rose for its ninth straight week last week, its longest winning streak in nearly a decade.

Resilient U.S. growth has fueled a rebound in the dollar in recent weeks though the rally will likely be tested by a gauntlet of data and Wednesday’s Federal Reserve interest rate decision.

“The Fed should stay on hold in terms of rates, and personally I don’t anticipate too much of a significant shift in terms of the statement, with a data-dependent tightening bias maintained,” Brown said.

“The balance of risks does tilt a little to the dovish side in terms of the dots, given recent rhetoric, though this shouldn’t significantly dent the dollar’s longer-run bullish trend given the FX market’s apparent focus on relative growth dynamics, where the U.S. remains by far the best of a bad G10 bunch,” he said, referring to the Fed’s interest rate forecasts to be released with the statement.

Fed fund futures show investors expect the Federal Reserve to keep interest rates on hold in the 5.25% to 5.5% range on Wednesday.

“In the grand scheme of things we’re quite positive on the dollar,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“The U.S. economy is outperforming both Europe and Asia, especially China.”

The euro was up 0.1% against the dollar at $1.06685. The European Central Bank raised interest rates to 4% last week, but said this hike could be its last.

The common currency rose to a new record high against the Swedish crown days before the Riksbank is expected to raise interest rates again.

Traders think Sweden’s central bank is highly likely to raise interest rates on Thursday by 25 basis points to 4%, piling more pressure on the economy.

The yen was up about 0.1% against the dollar at 147.7 to the dollar, with traders out for a Japanese public holiday.

They broadly expect the Bank of Japan to leave rates on hold at -0.1% on Friday, but will watch closely for hints about the policy outlook after Governor Kazuo Ueda stoked speculation of an imminent move away from ultra-loose policy.

Traders remained on high alert for possible intervention to support the battered yen.

The pound was 0.04% lower at $1.2377. Traders see the Bank of England raising rates by 25 basis points to 5.5% on Thursday, in what could be its final hike.

In cryptocurrencies, bitcoin rose 2.71% to $27,253, a more than two-week high.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Harry Robertson in London and Vidya Ranganathan in Singapore; Editing by Andrea Ricci)