U.S. dollar advances as Fed seen concluding asset buys sooner than expected

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The dollar rose on Monday ahead of a slew of central bank meetings this week led by the Federal Reserve, with investors expecting the U.S. central bank to announce it will wrap up its bond purchases sooner than expected, as they look for clues on timing of interest rate increases next year.

Aside from the Fed, the European Central Bank, Bank of Japan, Bank of England, Swiss National Bank, and Norges Bank, among others, all have policy decisions in the next few days.

The euro fell, as it is seen as vulnerable to a U.S. rate hike given expectations that the Fed will tighten policy more quickly than the dovish ECB.

The dollar index, which measures the greenback against six major peers, was up 0.2% at 96.297. The euro was down 0.2% at $1.1291.

Against the yen, the dollar was up 0.1% at 113.49 yen.

“The market has priced in the Fed concluding its bond tapering in Q1 and expects the central bank to put a rate hike firmly on the table by early summer,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

“Whether the dollar has any juice left to rally could hinge on how many times the Fed expects to raise rates next year. A Fed that signals little tolerance for higher inflation would strike a resoundingly hawkish note and likely keep the dollar biased higher,” he added.

Some analysts, however, believe the dollar’s march higher in recent weeks has already factored in many of its possible sources of strength in the short term.

That said, if the Fed forecasts 2022 inflation rates above 3 percent, or if the 2023 projection jumps, “dollar bulls will stampede,” noted Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

“If the dots show more than two rate hikes in 2022, the front-end of the yield curve will rise, taking the greenback with it.”

The pound dipped 0.4% to $1.3216 after Prime Minister Boris Johnson said on Sunday Britain faced an Omicron “tidal wave.” On Monday he said at least one person has died in the UK due to the latest variant.

The Swiss franc was down versus the dollar, which was last up 0.1% at 0.9219 francs, while the euro was down 0.1% at 1.0409 francs.

Moves in the franc came as the Swiss National Bank’s sight deposits rose last week by their highest amount in seven months, indicating policymakers are taking the first steps to battle a rise in the value of the franc against major rivals, particularly the euro.

The SNB, which has been battling the appreciation of the franc since the start of the pandemic, is due to make its latest interest rate decision on Thursday.

In cryptocurrencies, bitcoin fell to a two-week low of $45,750 and was last down 7.2% at $46,500, after hitting levels above $50,000 on Sunday. Ether, the token linked to the Ethereum blockchain, dropped 9.8% to $3,747.

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Currency bid prices at 2:58 PM (1958 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 96.3080 96.1040 +0.22% 7.031% +96.4500 +96.0800

Euro/Dollar $1.1289 $1.1316 -0.24% -7.60% +$1.1319 +$1.1261

Dollar/Yen 113.5200 113.3950 +0.09% +9.85% +113.7200 +113.3000

Euro/Yen 128.14 128.30 -0.12% +0.96% +128.4500 +128.0200

Dollar/Swiss 0.9221 0.9207 +0.12% +4.19% +0.9256 +0.9200

Sterling/Dollar $1.3218 $1.3271 -0.38% -3.23% +$1.3268 +$1.3209

Dollar/Canadian 1.2795 1.2725 +0.55% +0.48% +1.2820 +1.2710