The Dollar Stable Against Major Currencies

The dollar was largely flat against major currencies after falling in the previous session following U.S. data that showed modest wage pressures. Importantly, investors have been eagerly awaiting the conclusion of the Federal Reserve’s policy meeting.

The U.S. bank should raise interest rates by 25 basis points. Fed Chairman Jerome Powell’s press conference will likely take center stage as traders try to gauge how long the Fed will stay on hold.

The dollar index, which measures the U.S. currency against 6 major peers, fell 0.028% to 102.061. It was down 0.15% in the previous session, partly because U.S. labor costs rose at the fourth quarter’s slowest pace of the year.

Statistics show that the index has fallen for four months in a row. As investors price at the end of the rate hike cycle, the index is far from the 20-year high of 114.79 it hit on Sept. 28.

Investors’ attention this week will also be on the monetary path of the EU Central Bank and the Bank of England, which should increase interest rates by 50 basis points.

Currencies

The euro fell 0.02% to $1.0858, while sterling last traded at $1.232, down 0.081% on the day.

The Japanese yen strengthened 0.11% against the dollar to $129.97.

Fed funds futures prices imply that the Fed’s benchmark rate will peak at 4.92% in June, from 4.32% to 4.33%, before falling to 4.481% by December.

Recent advances in inflation have encouraged market participants to expect the Fed to switch from rate hikes to rate cuts soon.

The Fed raised interest rates by 50 basis points after four consecutive 75 bps rate hikes. Interest rates could be held higher for a longer period to reduce inflation.

Expectations for a soft landing have risen somewhat since the start of the year, compared to rising recession bets in the second half of last year.

There are some signs that Powell and the team may be aiming to extend the hike cycle to buy more time to assess incoming data and the impact of their previous aggressive rate hikes.