TOKYO – The dollar traded near a one-week high versus a basket of major rivals on Tuesday, supported by expectations of a hawkish Federal Reserve meeting this week and haven demand amid continued uncertainty about the Omicron coronavirus variant.
The dollar index, which measure the currency against six peers, was little changed at 96.416, after touching 96.450 on Monday for the first time since Dec. 7.
The Fed’s two-day meeting that begins later Tuesday headlines a string of central banks announcing policy decisions this week, including the European Central Bank and Bank of England on Thursday and the Bank of Japan on Friday.
The US central bank is expected to announce it will wrap up its bond buying stimulus sooner than previously communicated, potentially setting up earlier interest rate increases next year.
Money markets currently price good odds of a rate hike by June, with another as early as November.
“That leaves a very high bar for the Fed to deliver a ‘hawkish surprise’,” Westpac strategists wrote in a client note.
“But even if the Fed merely matches elevated expectations, they are still streets ahead of the ECB, who is looking for ways to maintain accommodation” after its Pandemic Emergency Purchase Programme (PEPP) is due to end in March.
Although the dollar index’s advance has slowed recently, pullbacks into the mid-95 level are a buy, the strategists said.
