The Dollar Holds Steady; Traders rethink Rate Expectations

The dollar fell on Monday as traders believed that the Federal Reserve’s tightening actions had already been priced in. In contrast, the euro fell from its two-month high. China’s surprise decrease in key lending rates has positioned it as an outlier, with other major central banks negotiating rate hikes. China’s action initially pushed the yuan down.

At 0900 GMT, the US dollar index was down 0.1 % at 95.076, falling substantially last week before Friday’s surge. On Monday, the cash Treasury market was closed due to a holiday.

Federal Reserve Will Decide

The Federal Reserve will meet on January 25-26 and should not change rates at this time. According to ING analysts, with no important economic data due this week, markets will focus on remarks by President Christine Lagarde and other ECB members.

On Friday, European Central Bank President Christine Lagarde stated that the bank is ready to take all steps required to bring inflation back to its objective of 2%. Last month, inflation in the 19-country currency union reached 5%, the highest level on record. In statements published on Friday, ECB board member Isabel Schnabel argued that boosting interest rates in the eurozone will not bring down surging energy prices.

China stands out as an anomaly. A spate of economic statistics is confirming the dampening effect of coronavirus restrictions on consumer spending. This is pushing Beijing to loosen its monetary policy. The yuan weakened slightly as government bonds surged in response to the rate decrease before stabilizing at 6.3475 per dollar. The release of UK inflation statistics on Wednesday might help prolong sterling’s month-long rise. It remained unchanged against the dollar at $1.3679 after reaching its highest level since late October last week.

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