Dollar’s Fourth Monthly Decline

On Tuesday, the dollar was on track for a fourth monthly loss as investors speculated that a peak in US interest rates could come as soon as this week’s Federal Reserve meeting. Before the Fed rate decision on Wednesday and the Bank of England and European Central Bank rate announcements on Thursday, there was a calm in currency trade.

The euro fell to $1.0912 on Monday after data showed Spanish inflation was surprisingly hot in January, although broader sentiment pushed it back to $1.0844. The currency is up 1.33% this month, nearing a nine-month high.

The US dollar index fell 1.34% in January and remained at 102.271 on Tuesday.

The Japanese yen fell 0.42% overnight but was steady at 130.26 in Asia, marking its third straight monthly gain as markets await monetary policy changes.

Sterling, the New Zealand, Australian, and Canadian dollars also suffered losses during the night but should have monthly gains.

The Australian dollar fell 0.74% overnight, but at $0.7036, it is up about 3.231% for the month. The kiwi, last at $0.64737, is up more than 1.54% in January.

Fed Will Gradually Stop the Harsh Rate Hikes

Interest rate futures point to market expectations for a 25 basis point hike from the Federal Reserve to push the Fed funds rate window to 4.6%-4.80%. Prices suggest two more 25 basis point gains are expected before tapering off later in the year.

In the unlikely outcome that the Fed creates the view that they may stop hiking after this week, the US dollar will sell off easily, and risk assets will rise.

Markets largely shrugged off slightly better Chinese manufacturing data, which signaled a welcome return to growth in January, with the focus now on the impending recovery.

Australia is also a bit cautious about consumption, with retail sales posting their biggest drop in more than two years last month, a sign that rate rises are hurting. Traders slightly underestimated expectations for the news.