The US dollar gains ahead of the Fed;  The Swedish krona falls after a hike

The US dollar gains ahead of the Fed; The Swedish krona falls after a hike

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  • Sweden’s central bank raises rates by 100 basis points
  • US rate hike in focus as Fed begins meeting on Tuesday
  • BOE and BOJ to make rate policy decisions on Thursday

LONDON/NEW YORK, Sept 20 (Reuters) – The dollar rose on Tuesday, trading near a two-decade high, as investors held firm in expectation of another aggressive rate hike by the Federal Reserve, the centerpiece of a week filled with central bank meetings.

The Fed begins a two-day meeting on Tuesday, with rate futures traders pricing an 81% chance of a 75 basis point hike and a 19% chance of a 100 basis point tightening.

The dollar index was on course for its fifth weekly gain in six and its latest rise of 0.5% to 110.04 . It is not far from 110.79, a level reached at the beginning of the month for the first time since June 2002.

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“Traders and investors are hiding, aware that the dollar is behaving like a force of nature and unwilling to face its wrath,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“That means – with nothing to slow it down by Wednesday, the greenback will likely follow Newton’s first law: a moving object will stay moving until acted upon by an outside force.”

The market was also shaken on Tuesday by the Swedish central bank, which raised its rates by one percentage point. The rate hike by the Riksbank was bigger than analysts had expected, causing the Swedish krona to rise briefly against the euro and the dollar. Read more

He failed to retain this strength. The euro extended its recent gains, climbing to a new six-month high at 10.8590 crowns. The euro was last up 0.6% at 10.8643. The dollar also climbed 0.6% to 10.8764 crowns.

“In a way, it was an attempt by the Riksbank to lift the crown, but it failed, and that’s not surprising,” said Francesco Pesole, currency strategist at ING.

He said the relationship between European currencies and central bank policies had crumbled as markets increasingly traded on the energy and growth outlook for Europe.

Reuters Charts

Providing further support for the dollar, the two-year US Treasury yield, which is sensitive to rate policy expectations, rose to 3.992%, its highest level since November 2007.

The euro slipped 0.4% to $0.9981, after falling to $0.9864 on September 6 for the first time in two decades, while the battered pound fell 0.2% to 1 ,1402$.

The Bank of England will decide its policy on Thursday and investors are split on whether a 50 or 75 basis point hike is on the way. Read more

The Bank of Japan also meets this week, but is widely expected to keep its ultra-easy stimulus parameters unchanged – including setting the 10-year yield near zero – to support a fragile economic recovery. .

The yen took a kick due to this policy and the dollar was last up 0.4% against the Japanese currency at 143.78, continuing a week of consolidation after hitting 144.99 on September 7 for the first time in 24 years.

The dollar-yen currency pair tends to follow the long-term yield differential between US and Japanese government bonds, and was therefore little affected by data that showed inflation to be high, at least in Japanese terms. Read more

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Currency rates at 10:39 a.m. (2:39 p.m. GMT)

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Reporting by Alun John in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Kevin Buckland in Tokyo; Editing by Chizu Nomiyama and Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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