Tue, February 07, 2023

The Dollar Losses Recent Gains Ahead of Fed’s Meeting

Dollar, Fed, currencies, hawkish,

Early on Tuesday in European trading, the U.S. dollar fell as investors assessed the possibility that the Federal Reserve will announce a less aggressive course for raising interest rates on Wednesday after its most recent policy meeting.

The Dollar Index measures the dollar’s value against six other currencies. It was trading 0.4% down at 110.993 at 03:55 ET (07:55 GMT). Following its most recent policy-setting meeting on Wednesday, the Fed is generally anticipated to announce a further 75 basis point rate rise, marking its fourth consecutive increase. The amount of the rate increase in December is still up for question. Still, there are rising hopes that evidence of economic deterioration will convince the Fed’s officials to accept a rate increase of only 50 basis points.

Outlook on Global Rates’ Policies

The Reserve Bank of Australia increased interest rates by just 25 basis points earlier Tuesday, despite raising its inflation forecast and lowering its GDP outlook. This is while the Bank of Canada slowed the pace of rate increases last week, raising its benchmark overnight lending rate by 50 basis points rather than the three-quarter move anticipated.

After recent data revealed that Australian inflation increased by a higher-than-projected 7.3% to a 32-year high in the third quarter, there were fears the central bank was becoming slack on inflation. This led to a 0.3% increase in the AUD/USD currency pair, reducing previous significant gains. After last week’s 75 basis point increase, there is still pressure on the European Central Bank to raise interest rates further. This is because statistics released Monday revealed that Eurozone inflation reached a record-high 10.7% in October.

Ahead of the Bank of England meeting on Thursday, which should largely result in another hike in interest rates with inflation running at double digits, GBP/USD increased 0.3% to 1.1507. After Japanese officials disclosed that their nation spent a record $42.8 billion on currency intervention this month to support the yen, USD/JPY dropped 0.5% to 147.97.

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