The dollar slipped from an over one-month high on Tuesday as an extended slide in oil prices eased inflationary concerns. The euro edged up 0.2% to $1.1388, with traders balancing solid Eurozone composite survey data against hawkish ECB commentary. A Federal Reserve interest rate decision follows on Wednesday, which the CME FedWatch tool puts at about a 69% probability of a hold.
The U.S. dollar slipped on Tuesday, pulling back from an over one-month high as inflationary concerns eased amid an extended slide in oil prices. Currency market participants were looking ahead to the Federal Reserve's interest rate decision on Wednesday.
Measured against a basket of six major peers, the dollar index was down 0.1% to 101.42.
Hawkish ECB commentary meets solid Eurozone surveys
The euro edged up 0.2% to $1.1388, keeping its distance from recent highs as traders balanced solid Eurozone composite survey data against hawkish commentary from European Central Bank officials. ECB Governing Council member Peter Kazimir noted earlier that a September rate hike remains necessary even if Eurozone economic growth accelerates, signaling that European borrowing costs will also stay elevated.
Traders put about 69% odds on a Fed hold
Attention now sits squarely on the Fed's fifth interest rate decision of the year. The Federal Open Market Committee is mostly expected to hold rates steady, with the CME FedWatch tool showing a probability of about 69% for that outcome. However, the outlook for monetary policy has largely been in flux this month amid the dynamic situation in the Middle East.
Investors will also be listening to new Fed Chair Kevin Warsh, whose commentary since the June rate decision has been largely hawkish. He has stressed that the FOMC is committed to delivering price stability. Warsh has also appointed five task forces to review Fed operations, tackling items such as communications and inflation frameworks.
According to Goldman Sachs, the decision is an "unusually uncertain" one amid the volatility in oil prices. Analysts said soft June inflation data had likely lessened support for immediate policy tightening, adding that the central bank had historically avoided delivering surprise rate hikes.
Yet the odds of a hike on Wednesday, while relatively low at nearly 32%, still drew comment. Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, said that was substantially higher than what markets typically priced ahead of meetings under previous Fed Chair Jerome Powell.
Sterling ticks up while the yen sits near multi-decade lows
Sterling ticked up marginally to $1.3293 ahead of the Bank of England's rate decision later in the week. The Japanese yen hovered near multi-decade lows at 163.81 against the dollar.
Verbal intervention from Japanese financial authorities has done little to arrest the yen's prolonged weakness against high-yielding currencies, and traders are now eyeing Friday's Bank of Japan policy meeting for any signs of accelerated normalization.
Source: Investing.com
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