Dollar Gains on Euro before Fed Meeting
Dollar Strengthens as Investors Anticipate Fed Meeting
The dollar gained against the euro on Monday as investors prepared for the prospect that the Federal Reserve could push back against expectations of an imminent rate cut when it concludes its two-day meeting on Wednesday.
Shift in Market Expectations
Traders have cut odds that the U.S. central bank will reduce rates in March to 48%, from 89% a month ago, according to the CME Group’s FedWatch Tool, as data reinforces a view that the U.S. economy remains solid.
That also contrasts to a weaker economic outlook for European countries, which is making the single currency relatively less attractive.
U.S. Economy vs. European Union
“The macro picture in the U.S. looks a lot better than the macro picture in European union countries and the eurozone in general,” said Helen Given, FX trader at Monex USA in Washington.
The Fed is expected to hold rates steady on Wednesday and investors will focus on comments from Fed Chairman Jerome Powell, after he indicated in December that the Fed is pivoting to a rate cutting cycle.
European Central Bank’s Stance
The European Central Bank on Thursday held interest rates at a record-high 4% and reaffirmed its commitment to fighting inflation even as the time to start easing borrowing costs approaches.
ECB President Christine Lagarde emphasized during her press conference that the debate over rate cuts was premature but reiterated that borrowing costs could be lowered from the summer. Lagarde also did not lean against aggressive money market expectations of the ECB’s easing cycle,” said Win Thin, global head of currency strategy at Brown Bothers Harriman, in a note.
Market Outlook and Geopolitical Risks
Traders are now fully pricing a move in April, with almost 150 basis points of easing priced in for the year.
The index fell in afternoon trading in line with Treasury yields after the U.S. Treasury said it expects to borrow $760 bln in the first quarter, $55 bln lower than its October estimate.
Sterling was little changed on the day at $1.27050 ahead of the Bank of England’s policy announcement on Thursday.
Investors are also wary of growing geopolitical risks after three U.S. service members were killed in an aerial drone attack on U.S. forces in northeastern Jordan near the Syrian border.
Such uncertainties could provide the safe-haven yen with a temporary lift, analysts said.
In cryptocurrencies, Bitcoin gained 2.62% to $43,087.
