Dollar near multi-year high as fed dooms, growth wears weigh

As traders anticipated a rate hike from the US Federal Reserve on Tuesday, the dollar managed to hold at multi-decade highs.

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On Tuesday, traders anticipated a rate hike from the US Federal Reserve but questioned if signs of a slowing economy may cause a move away from the focus on inflation. The dollar hovered slightly below multi-decade records.

The euro increased by 0.21 percent to $1.0240, but was constrained by concerns about Europe’s energy security, which are made worse by a potential reduction in the supply of Russian gas headed west.

At 136.43 to the dollar, the yen remained stable.

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On Wednesday, the Fed wraps up a two-day meeting. As markets struggle to determine if or when officials could suspend measures to combat inflation despite signs the economy is slowing, traders have been lowering expectations.

Futures pricing predicts a rate increase of 75 basis points (bps), with a 10% possibility of 100 bps.

Imre Speizer, an analyst at Westpac in Auckland, said, “I don’t believe the market’s got a very good, confident feel that it’s going to be one flavour of surprise or the other.”

Which is sufficient to maintain the dollar.

The US dollar index was marginally lower at 106.270, but not much below the 20-year high of 109.290 reached in mid-July, as the greenback gains strength from anticipation of US interest rate increases and as a safe haven in a downturn throughout the world.

Following a string of weaker-than-anticipated US and European data prints, Walmart issued a profit warning on Monday, claiming that consumers were tightening their belts.

Small gains were made by the dollars of Australia and New Zealand. As traders awaited the publication of Wednesday’s inflation statistics, the Australian dollar reached a one-month high of $0.6984 and last traded at $0.6970, breaching above its 50-day moving average.

The quickest rate in more than three decades is being seen in headline consumer prices, which are galloping at a rate of 6.2% year over year.

“There may be some slight upside for the Aussie, depending on the data,” said analysts at ANZ Bank.

“A 50bp hike from the (Reserve Bank of Australia) next week is all but a foregone conclusion – the main risk is for a larger hike,” they said.

“But this would require a very, very high CPI number, given that the RBA has more flexibility with its monthly meetings.”

Although it is hardly supporting sterling, a 50 bp increase is likewise anticipated as the Bank of England’s most likely action for the next week. Tuesday saw a small 0.2% increase in the pound, reaching $1.2075.

Cryptocurrencies elsewhere reversed last week’s advances. At $21,100, bitcoin was at its lowest price since July 18. At $1,421, ether had its lowest price since July 18.