LDN - Business

Dollar stands tall in blockbuster week for central banks

[December 13, 2021] By Stefano Rebaudo

(Reuters) -The dollar edged higher on Monday ahead of a slew of central bank meetings this week including the U.S. Federal Reserve, with investors eyeing how quickly it will unwind bond-buying and looking for clues on when it will start to raise rates in 2022.

The euro fell, as it is seen as vulnerable to a rate hike in the United States on expectations that the Fed will tighten policy more quickly than the dovish European Central Bank.

The dollar index, which measures the greenback against six major peers, was up 0.3% at 96.38. The euro was down 0.4% at $1.1268.

“We see moderate hawkish risks into the December FOMC (Federal Open Market Committee) on Wednesday, as the Fed mainly remains focused on optionality to respond to the possibility of continued inflation,” Citi analysts said in a note, adding they are "tactically bearish EURUSD into this week."

But some analysts believe the dollar's march higher in recent weeks has already factored in many of its possible sources of strength in the short term.

"Going to next year, I don't feel the same degree of dollar bullishness as the consensus estimates," Kamakshya Trivedi, co-head of global FX, rates and EM strategy at Goldman Sachs, said.

"For example, if we start to see higher commodity prices and decent data from China, the dollar may be on the back foot after a good run."

The Norwegian crown was down 0.6% against the U.S. dollar. The Norges Bank, which said it will maintain a policy of not buying Norwegian crowns on behalf of the country's government in December, is widely expected to raise its benchmark interest rate on Thursday.

[to top of second column]

A picture illustration shows U.S. 100-dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

MUFG analysts, referring to the new coronavirus strain, said: "A hike is not fully priced with Omicron uncertainty taking out some of the pricing, so there’s scope for NOK outperformance if Norges bank acts."The pound lost 0.2% to $1.3245 after British Prime Minister Boris Johnson said on Sunday that Britain faced a "tidal wave" of the Omicron variant.

The Swiss franc was flat, remaining not far from its highest level since end-June 2015 versus the euro at 1.0373.

The Swiss National Bank, which has been battling the appreciation of the franc since the start of the pandemic, is due to make its latest interest rates decision on Thursday and has stepped up it intervention against the franc.

The Turkish lira trimmed some losses as the central bank was in the market selling dollars. It was down 1.7% at 14.12 versus the greenback, after hitting an all-time low at 14.99 on persisting concerns about President Tayyip Erdogan's low-interest rate policy and before a rate decision later this week.

Bitcoin was up 1.7% at $48,810.28 after hitting levels above $50,000 on Sunday. Ether, the coin linked to the ethereum blockchain network, fell 3% to $4,011.

(Reporting by Stefano Rebaudo, editing by Mark Heinrich)

Back to top