2 hrs ago
Dollar Struggles Despite Higher Federal Reserve Hike Expectations
The U.S. dollar did not gain much even though investors increasingly expect the Federal Reserve to raise interest rates.
A strong U.S. jobs report helped increase those expectations.
Investors are now waiting for U.S. inflation data on Friday for more clues.
Higher oil prices are making people worry that prices could keep rising around the world.
This is also increasing expectations that other central banks will raise interest rates.
The Japanese yen strengthened because traders expect the Bank of Japan may raise rates soon.
Concerns about U.S. debt and policy uncertainty also weighed on the dollar.
Bitcoin stayed above $80,000 as some investors looked for assets outside the dollar.
The dollar weakened despite traders raising the probability of a Federal Reserve rate hike this month.
Markets now see about a 57% chance of a September Federal Reserve hike, with U.S. inflation data due Friday viewed as decisive.
Higher oil prices are sustaining global inflation concerns and encouraging expectations for rate increases by major central banks.
The yen rose more than 0.2% to 155.88 per dollar as expectations for Bank of Japan tightening strengthened.
The euro rose to $1.1618, while Bitcoin held above $80,000 as investors diversified away from the dollar.
- Who
- Currency traders, the Federal Reserve, the European Central Bank, the Bank of Japan, and investors in major currencies and Bitcoin.
- What
- The dollar remained weak while expectations for a September Federal Reserve rate hike increased; the yen strengthened and other central banks were also expected to tighten policy.
- Where
- Currency markets in early Asian trading, with market moves influenced by the United States, Japan, Europe, and the Middle East.
- When
- Monday, September 7, with U.S. inflation data expected Friday and central-bank meetings later in September.
- Why
- Higher oil prices, a strong U.S. jobs report, expectations of central-bank rate increases, U.S. debt and policy concerns, and changing investor positions affected currency demand.
Case for Higher Rates
Case for Caution
Federal Reserve decision
Case for Higher Rates
A hot U.S. inflation reading would strengthen the case for a September rate hike and could support the dollar.
Case for Caution
A cooler inflation reading would strengthen the case for keeping rates unchanged and could lead markets to reduce expectations for Federal Reserve tightening.
Dollar outlook
Case for Higher Rates
Higher U.S. rates following the strong jobs report could provide near-term support for the dollar.
Case for Caution
Even if a September hike occurs, tightening by other major central banks, U.S. debt concerns, and policy uncertainty could prevent the dollar from reaching new cyclical highs.
Japanese monetary policy
Case for Higher Rates
Expectations for a Bank of Japan rate increase, supported by hawkish comments, could encourage yen buying and capital repatriation.
Case for Caution
A persistent yen rally could threaten the performance of carry trades and signal changes in global asset allocation.
Key facts
- Dollar index
- Fell 0.07% to 99.09, near its recent low of 98.558.
- September Fed hike probability
- Traders priced in roughly a 57% chance of a Federal Reserve rate increase.
- Key economic data
- U.S. inflation data due Friday could influence expectations for a Federal Reserve hike or pause.
- Euro
- Rose marginally to $1.1618.
- Japanese yen
- Rose more than 0.2% to 155.88 per dollar.
- European Central Bank outlook
- Markets saw a rate increase to 2.75% on Thursday as certain and a 75% chance of another increase to 3.0% by December.
- Bitcoin
- Stood at $80,145.95 after holding above $80,000.
Quotes
Eric Robertsen
Global head of research and chief strategist at Standard Chartered
“A hot CPI print would all but seal a September hike and underpin a firmer U.S. dollar. A cooler reading would strengthen the case for a hold and leave the U.S. dollar vulnerable to a dovish Fed repricing.”
livemint.com
“Even if a September Fed hike becomes a done deal, we doubt the U.S. dollar will make new cyclical highs. Tightening by other major central banks limits policy divergence.”
livemint.com
Sources
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