NEW YORK- The dollar held just below a 20-year high against a basket of currencies on Monday before an expected Federal Reserve rate hike this week, with traders focused on the potential for the US central bank to adopt an even more hawkish tone than many expect.
The Fed has taken an increasingly aggressive approach to monetary policy as it tackles inflation that is soaring at its fastest pace in 40 years. It is expected to hike rates by 50 basis points and announce plans to reduce its $9 trillion balance sheet when it concludes its two-day meeting on Wednesday.
Though the chances are seen as low, some investors are watching for the possibility of a 75 basis point hike, or a faster pace of balance sheet reduction than currently expected.
“A lot of traders are anticipating that the Fed’s not going to back down from this hawkish stance and you could still see some hawkish surprises, and that’s why the dollar is likely to hold on to its gains heading into the meeting,” said Edward Moya, a senior analyst with OANDA in New York.
Comments by Fed Chairman Jerome Powell at the conclusion of the meeting will also be scrutinized for any new indications on whether the Fed will continue to hike rates to battle rising price pressures even if the economy weakens.
US factory activity grew at its slowest pace in more than a year and a half in April amid a rise in workers quitting their jobs, and manufacturers are becoming more anxious about supply.
The dollar was last at 103.72 against a basket of currencies =USD, after reaching 103.93 on Thursday, the highest since Dec. 2002.
The euro was at $1.0493, after dropping to $1.0470 on Thursday, the lowest since Jan. 2017.
The single currency was hurt after data showed euro zone manufacturing output growth stalled last month as factories struggled to source raw materials, while demand took a knock from steep price increases. – Reuters
