The Dollar Is Falling as The Current Run Comes to A Halt

The dollar dipped on Monday, registering its worst daily drop since November, as investors consolidated gains after hitting a one-and-a-half-year high on Friday in anticipation of a quicker pace of Fed rate rises. Following the Fed’s announcement last week that it plans to raise interest rates as soon as the March 15-16 policy meeting, Wall Street banks are now forecasting five to seven rate rises this year.

Outlook on Fed’s Policies

Fed funds futures priced in little under five rises for 2022, or roughly 121 basis points of tightening, as of late Monday. They also suggested a 17% possibility of a 50 basis-point hike in March, down from 32% on Friday. In an interview with the Financial Times over the weekend, Atlanta Fed President Raphael Bostic, a non-voter on the Federal Open Market Committee, said the Fed may super-size a rate hike to half a %age point if inflation remained stubbornly high.

The dollar index fell 0.7 % on the day, its greatest daily %age gain in two months. For January, the dollar gained approximately 1%. According to a survey, the United States’ payrolls should increase by 153,000 jobs in January, down from 199,000 in December. The unemployment rate remains unchanged at 3.9 %.

The Australian dollar led advances in other currencies, jumping 1% to US$0.7068 ahead of the Reserve Bank of Australia’s policy meeting on Tuesday. The dollar slipped 0.2 % against the yen to 115.045 yen.

On Thursday, the Bank of England holds its policy meeting. A poll expects a second rate rise in less than two months after UK inflation hit its highest level in almost three decades. At $1.354, sterling was up 0.4 %. On the same day, the European Central Bank will also convene. There shouldn’t be a policy change; however, economists believe the ECB’s window for action will be narrowed due to the Fed’s impending rate rises.

The euro recently traded at $1.1240, up 0.8 % from the previous day’s close, its highest daily percentage increase in two months.

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