Investors are bracing up for the US Federal Reserve’s meeting in January as expectations are raised it will hold several rate hikes.
Meanwhile, China surprised analysts with a shocking benchmark cut. As traders gauge the global policy outlook, they are also looking forward to Chinese economic data due later, on Monday – the results of the Bank of Japan’s policy meeting on Tuesday, inflation data from Britain on Wednesday, and Australian jobs data on Thursday.
Early in London trading sessions, the greenback was trading 0.2% higher at 114.45 yen, or approximately 0.8% above a Friday low. It also gained 100 basis points against the euro to $1.1403.
In the wake of Friday’s dollar and U.S. yield jumps, these moves underscore support for the greenback from hawkish rates outlooks, even as momentum for gains starts to wane.
As of Monday, the U.S. dollar index in London was around 95.2-points, having declined sharply last Friday. The dollar strength’s interest rate driver may not be completely buried after Friday’s move.
Currency experts have seen an increase in hawkish statements at every Fed meeting since June of last year, but it may not necessarily bring new dollar highs.
Rates are not expected to change at the Fed meeting on Jan. 25-26, but there is a growing drumbeat of hawkish comments coming from both within and outside the central bank.
According to J.P. Morgan CEO Jamie Dimon, six to seven rate hikes are possible this year, and billionaire hedge fund manager, Bill Ackman floated the possibility of an initial 50 basis point hike on Twitter over the weekend.
Treasury futures and Fed funds futures both fell as the cash market was closed for a holiday on Monday, reflecting a strong market belief of at least four rate hikes in 2022.