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Dollar near 18-month high ahead of bumper central bank week
This week will go far to define the psychology of the market for the next few months, said Westpac analysts.
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Rolled Euro banknotes are placed on US Dollar banknotes in this illustration taken May 26, 2020. (Reuters/Dado Ruvic)
T
he United States (US) dollar was near a year-and-a-half high against the euro on Monday with equities markets volatility expected to push it higher in the short-term as traders eyed upcoming Australian, United Kingdom and European central bank meetings.
The euro was at US$1.1148, just off last Friday's low of $1.1119, its weakest since June 2020. The Aussie dollar was at $0.6991, also languishing near Friday's 18-month low, while sterling was at $1.34015, near the one-month low hit last week.
The greenback had its best week in seven months last week supported by investors seeking safety amid a sell-off in riskier assets and by analysts raising forecasts for US interest rate hikes.
MSCI's 50-country main world index is headed for its worst month since the start of the pandemic.
Market pricing now suggests a more than 90 percent chance of at least four rate hikes by the end of the year and a 67 percent chance of at least five.
"The USD 'smiled' again, drawing on a combination of rates repricing and much weaker risk sentiment," said analysts at Barclays.
Looking forward, they said weak and volatile equities could support the dollar but the potential for further dollar gains based on rate hike expectations was limited, as last week's moves mean an "aggressive normalisation cycle" is now priced in.
