By Kevin Buckland
TOKYO (Reuters) – The dollar settled about 1% below its highest level in two decades against its major peers at the start of a week that saw dozens of central bank decisions, led by the Federal Reserve on Wednesday, followed by the Bank of Japan and the Bank of Japan. From England the next day.
The AL, which measures the currency against six peers, was 0.09% stronger than Friday at 109.66, consolidating after two volatile weeks that reached 110.79 on September 7 for the first time since mid-2002, only to be seen. It fell to 107.67 after six days.
Investors have been swayed by economic data that has at times suggested that the Fed may slow the pace of interest rate hikes to reduce the damage to the economy and the risk of recession, only to show that inflation is still rising rapidly.
Fed policy makers stressed that their decisions will be made at the meeting and will be based on the latest data.
At the moment, markets are pricing in at least another 75 basis points increase for this week’s FOMC meeting, and 19% odds of a big rally in the full percentage.
This week is also filled with market holidays that could dampen liquidity and lead to sharper price moves, with Japan and Britain shut down on Monday, Australia on Thursday, and Japan again on Friday, among others.
“The US dollar could remain elevated as the FOMC continues to rally strongly and the risks of a global recession increase,” wrote OTC strategists in a client note, and could reach a new cyclical high above 110.8.
They said the poor economic outlook would keep the euro, sterling and pro-cyclical currencies such as the Australian dollar under pressure.
The dollar was little changed at 142.905 yen, calming after climbing to a 24-year high of 144.99 earlier this month.
The Bank of Japan is widely expected to commit to massive stimulus on Thursday, and stands out among the central banks in developed nations that are all working to tighten policy quickly to tame inflation.
At the same time, a turning point may come sooner than many policy watchers expect after the Bank of Japan recently dropped the word “temporary” to describe rising consumer prices, although the level is well below places like the US and Britain.
The British pound was flat at $1.1426, after hitting a 37-year low of $1.1351 on Friday.
Markets are divided over whether the BoE will raise interest rates by 50 or 75 basis points on Thursday.
The monetary tightening will conflict with new British Finance Minister Kwasi Quarting’s emergency mini budget, which will be delivered on Friday, which will provide more details on support to help ease the country’s cost-of-living crisis.
The euro was little changed at $1.00075, continuing a week of consolidation after swinging between a two-decade low of $0.9864 on Sept. 6 and a nearly one-month high of $1.0198 a week earlier.
The dollar was little changed at $0.67205 from Friday, when it fell to its lowest level since mid-2020 at $0.6670.
The New Zealand dollar settled at $0.5989, after falling to its weakest level since May 2020 at $0.5940 at the end of last week.