US dollar near recent peaks as Fed rate hike looms, growth fears weigh

The Federal Reserve concludes a two-day meeting on Wednesday

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By Reuters

Published: Tue 26 Jul 2022, 8:18 AM

Last updated: Tue 26 Jul 2022, 8:22 AM

The dollar held just below multi-decade peaks on Tuesday as traders awaited a rate hike from the US Federal Reserve but wondered whether hints of a slowing economy may prompt a shift away from its focus on inflation.

The euro rose 0.21 per cent to $1.0240 but was hemmed in by uncertainty over Europe's energy security, which is not helped by a looming cut in the westbound flow of Russian gas.

The yen steadied at 136.43 per dollar.

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The Fed concludes a two-day meeting on Wednesday. Traders have been dialling back expectations as markets try to figure out if or when policymakers might pause inflation-fighting efforts amid signs the economy is starting to slow.

Futures pricing points to a 75 basis point (bp) rate hike with a 10 per cent risk of 100 bps.

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

"Which is enough to hold the dollar in place."

The U.S. dollar index was slightly lower at 106.270, but not too far below a 20-year high of 109.290 hit in mid-July, as the greenback draws strength from expectations of US rate rises and as a safe bet in a global slowdown.

A profit warning from Walmart on Monday, which said customers were tightening their belts, was the latest sign that the going is getting tough, following several softer-than-expected US and European data prints.

The Australian and New Zealand dollars eked small gains. The Aussie hit a one-month high of $0.6984 and last traded $0.6970, breaking above its 50-day moving average as traders waited for Wednesday's inflation data release.

Headline consumer prices are seen galloping at 6.2 per cent year-on-year, the fastest pace in more than three decades.

"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."

A 50 bp hike is also seen as the most likely move from the Bank of England next week, though it is barely lending support to sterling. The pound inched 0.2 per cent higher on Tuesday to $1.2075.

Elsewhere cryptocurrencies wound back last week's gains. Bitcoin sat at $21,100, its lowest since July 18. Ether also hit its lowest sine July 18 at $1,421.

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Reuters

Published: Tue 26 Jul 2022, 8:18 AM

Last updated: Tue 26 Jul 2022, 8:22 AM

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