Us Dollar Rises Ahead Of FOMC Meeting

The dollar gained across the board on Monday, regaining some of its momentum which it lost earlier in October. The American currency has been boosted by bets and expectations of another jumbo rate hike by this week’s Fed monetary policy meeting.

The dollar’s gains could be limited if the Fed signals on Wednesday that the pace of rate hikes will slow down in December as it assesses the impact so far of its policy tightening.

The Sterling, on the other hand, was on the defensive against the dollar and the euro, despite market forecasts of another 75 basis-point rate hike by the Bank of England later this week as well.

The Fed is widely expected to raise its benchmark overnight interest rate by 75 basis points (bps) to a range of 3.75% to 4.00%, its fourth such increase in a row. But for the December meeting, fed funds futures have priced in on Monday a 55% chance of a 50-bps rate increase, down from about 67% last Friday.

In afternoon trading, the dollar rose 0.8% against the struggling yen to 148.62 yen . For the month of October, the dollar was up 2.7%, on track to post its third monthly gain versus the Japanese currency.

The dollar in general is consolidating. A lot of the news has already been priced into the dollar. If the dollar is to make new gains, some economists believe it would be relatively marginal. Generally, the dollar is somewhere in the bend, trying to establish a high, but has not generally done so. The prevalent feeling across markets supports the idea that there is an exhaustion in that trading.

The US dollar, however, was on pace for a monthly decline of 0.5% in October, based on the dollar index. That would be its first fall since May and only its second this year.

The Sterling fell 1.2% against the dollar to $1.1476 . The BoE is likely to deliver a 75-basis point hike at Thursday’s meeting, although analysts said longer-term rate expectations are coming under sustained pressure. The pound also fell versus the euro, which rose 0.5% to 86.16 pence .

BoE Deputy Governor Ben Broadbent recently suggested that the borrowing costs priced by investors would hammer the UK economy, noting that he’s doubtful Britain could engineer a “soft-landing” – a U.S. term for bringing inflation back to target without significantly damaging the real economy.

The euro dropped 0.8% against the dollar to $0.9887 . The euro barely reacted after data released on Monday that showed eurozone inflation came in hotter than expected at 10.7%, a fresh record high.