Dollar near 18-month high ahead of bumper central bank week By Reuters

© Reuters. FILE PHOTO: An employee of Korea Exchange Bank counts one hundred US dollar bills during a photo opportunity at the bank’s headquarters in Seoul on April 28, 2010. REUTERS / Jo Yong-Hak

By Alun John

HONG KONG (Reuters) – The dollar was close to a year and a half high against the euro on Monday, and stock market volatility is expected to push it higher in the short term as traders watch upcoming Australian, British and European central bank meetings.

The euro was at $ 1.1148, down from last Friday’s low of $ 1.1119, its weakest since June 2020. The dollar was at $ 0.6991, also falling near Friday’s 18-month low, while the pound was at $ 1.34015, close a month’s low hit last week.

The dollar had its best week in seven months last week backed by investors seeking security amid a sell-off of riskier assets, and by analysts raising forecasts for US interest rate hikes.

MSCI’s 50 – year world key index is heading for its worst month since the start of the pandemic. [MKTS/GLOB]

Market prices now suggest a more than 90% chance of at least four interest rate hikes at the end of the year and a 67% chance of at least five.

“The USD ‘smiled’ again, drawing on a combination of rate hikes and much weaker risk sentiment,” analysts said at Barclays (PAY:).

Looking ahead, they said weak and volatile stocks could support the dollar, but the potential for further dollar gains based on expectations of rate hikes was limited, as last week’s move means an “aggressive normalization cycle” is now priced in.

which measures the dollar against six major peers, was at 97.205, just below Friday’s 18-month high of 97,441.

The yen was at 115.23 per dollar, in the middle of its most recent range, hit by the headwinds of rising US interest rates with little prospect of interest rate hikes at home, but supported by some demand for it as a safe haven.

While US wages are out on Friday, the focus this week shifts slightly away from the Fed to other central banks.

Australia viewers await the central bank’s Tuesday meeting, amid rising expectations for an announcement of the end of its quantitative easing program. It will be followed by an AS speech by the RBA governor on Wednesday and a statement on monetary policy on Friday.

The week “will go a long way in defining market psychology for the next few months,” Westpac analysts said. “That QE will cease will not be a surprise, so the real focus is on the RBA’s changing economic outlook and its implications for the (benchmark) cash rate.”

The Bank of England also has a meeting on Thursday where a Reuters survey among economists predicts another rate hike in less than two months as the BOE reverses more pandemic stimulus after inflation jumped to its highest in nearly 30 years.

The European Central Bank also has a political meeting on Thursday. Although no policy change is expected, analysts have begun warning that forthcoming Fed rate hikes will shrink the ECB’s window into action.

In cryptocurrencies, bitcoin stood at $ 37,700, after a quiet weekend for the digital asset.

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