The dollar climbed to more than a one-week high on Tuesday as traders piled into bets for a Federal Reserve interest rate hike this week. The euro slid to a one-month low and the yen extended its pullback, with the Fed and the Bank of Japan both due to announce policy decisions in the same week.
Dollar Index climbs toward one-week high
The Dollar Index, which tracks the greenback against a basket of six major currencies, inched up 0.24% to hover around 99.60, touching its highest level in over a week. Financial markets now treat a Fed hike as almost certain: CME FedWatch data show a 92.1% probability of a 25-basis-point increase to the 3.75%-4.00% range, up from about 60% a week earlier. Money markets also see a 53.4% chance of a follow-up hike in October.
Euro slips to one-month low
Meanwhile, the euro slid 0.1% to trade near $1.1539, a one-month low, as traders weigh eurozone stagflation risks against a hawkish dollar. The decline comes even after the European Central Bank raised borrowing costs by a quarter point to 2.50% last week.
Yen extends pullback before BOJ decision
Japan's currency weakened 0.3% to an over one-week low of 154.82 per dollar. That extends its retreat from a seven-month high of 152.89 reached last week. The move comes as markets await the Bank of Japan's policy decision on Friday. Even so, the yen has gained about 4% this month. That gain is driven by structural capital repatriation and a surge in Japan's 10-year government bond yield to a 30-year high of 3.025%.
Yields and oil add to the dollar's momentum
Benchmark U.S. 10-year Treasury yields climbed above 5% on Tuesday for the first time since 2007. At the same time, Brent crude climbed past $113 a barrel following fresh attacks on Saudi Arabian pipeline infrastructure and Houthi strikes in the Red Sea. According to DBS analysts: "energy input costs threaten to entrench second-round inflation", even as they cautioned against chasing the dollar's pre-FOMC rally, noting that two senior Fed officials had signaled a willingness to hold rates before entering their blackout period.
Source: Investing.com
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