Dollar hits 20-year high as Fed headlines big central bank week

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

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TOKYO, Sept 19 (Reuters) – The dollar held about 1% below a two-decade high against its major peers at the start of a week that sees a dozen central bank decisions, headlined by the Federal Reserve on Wednesday and followed by the Bank of Japan and Bank of England the following day.

The dollar index, which measures the currency against six peers, was 0.09% stronger from Friday at 109.66, consolidating after a volatile few weeks that took it to 110.79 on September 7 for the first time since mid-2002, only to see it fall back to 107.67 six days later.

Investors were swayed by economic data that at times suggested the Fed might slow the pace of rate hikes to soften the blow to the economy and the risk of recession, only to show inflation continuing to pick up. .

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Fed policymakers stressed that their decisions will be made meeting by meeting and will depend on the most recent data.

Currently, markets have priced in at least another 75 basis point increase for this week’s Federal Open Market Committee meeting, and a 19% chance of a large percentage point increase.

This week is also littered with public holidays that could reduce liquidity and lead to sharper price movements, with Japan and Britain off Monday, Australia on Thursday and Japan back on Friday, among others.

“The USD may remain high as the FOMC continues to climb aggressively and in the face of growing risks of a global recession”, and could reach a new cyclical high above 110.8, wrote the Commonwealth Bank strategists of Australia in a customer note.

The poor economic outlook will keep pressure on the euro, sterling and pro-cyclical currencies like the Australian dollar, they said.

The dollar was little changed at 142.905 yen, moderating after rising to a 24-year high of 144.99 earlier this month.

The BOJ is widely expected to stick to massive stimulus on Thursday, standing out among central banks in developed countries which are all rapidly tightening policy to keep inflation under control.

Meanwhile, a turning point could come sooner than many political watchers expect after the BOJ recently dropped the word “temporary” from its description of rising consumer prices, even though the level is far lower. to that of places like the United States and Great Britain. Read more

The pound was stable at $1.1426, after hitting a 37-year low of $1.1351 on Friday.

Markets are split on whether the BOE will raise rates by 50 or 75 basis points on Thursday. Read more

The monetary tightening will clash with Britain’s new finance minister Kwasi Kwarteng’s emergency mini-budget, to be presented on Friday, which will give more details on support to help ease the country’s cost of living crisis. Read more

The euro was little changed at $1.00075, continuing a week of consolidation after oscillating between a two-decade low of $0.9864 on September 6 and a nearly month-long high of $1.0198 there. a week old.

The Aussie dollar was little changed at $0.67205 from Friday, when it slipped to the lowest level since mid-2020 at $0.6670.

The New Zealand dollar was flat at $0.5989, after falling to the lowest since May 2020 at $0.5940 late last week.

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Reporting by Kevin Buckland; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

Carol N. Valencia