As the market prepared for yet another aggressive rate rise by the Federal Reserve, the U.S. dollar slipped down in early European trade on Tuesday. Still, it maintained its proximity to a 20-year high.
The Dollar Index compares the dollar’s value to a basket of six other currencies. This index was 0.1% down at 109.297 at 02:50 ET (06:50 GMT). Although it was still near the two-decade high of 110.79 achieved on September 7. Later in the day, the U.S. Federal Reserve will begin its most recent two-day policy-setting meeting. The central bank is expected to keep up its practice of dramatically raising interest rates to cool the burgeoning inflation rate.
Although a rise of 75 basis points is generally anticipated, some investors are preparing for a rise of 1 percentage point because the consumer price index for last week revealed that inflation was still stubbornly high. The decision will be followed by a new set of predictions for inflation, economic growth, and the trajectory of interest rates, all of which will be carefully examined to provide direction toward the terminal or peak rate of the central bank.
How Much of a Rate Rise to Expect?
According to economists at ABN Amro, in light of recent changes to the U.S. economy and inflation, they anticipate the FOMC to peak earlier and the front-load rate rises. They anticipate the fed funds upper rate to reach its 4% top in December rather than February.
The euro/dollar exchange rate increased by 0.1% to 1.0035, solidifying its position above parity after German producer prices increased at their fastest rate in recorded history in August, rising 45.8% over the same period last year, with rising energy costs serving as the primary driver.
Last week, the European Central Bank increased interest rates by 75 basis points to combat double-digit inflation. This information from the biggest economy in the Eurozone can only make them more determined. The United States 2-Year Treasury yield increased overnight to a high of 3.970% for the first time since November 2007, which further impacted the yen and caused the USD/JPY to rise 0.1% to 143.32.