NEW YORK: The dollar gained 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.
Traders have cut odds that the U.S. central bank will reduce rates to 49%, from 73% 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.
“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.
Dollar steady in cautious start to busy data, Fed week
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.
“We’ll probably see a bit of pushback on the last meeting,” said Given. “I’d expect that a lot of the dollar strength that we’re seeing today, and we should continue to see until that decision release on Wednesday, is coming from shifting expectations.”
The dollar index, which measures the U.S. currency against six rivals, was last up 0.19% at 103.75 and remained close to the six-week high of 103.82 it touched last week. The index is set for a 2.4% gain in January.
The euro dipped 0.39% to $1.08080.
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.
The next move will be an interest rate cut but policymakers speaking on Monday disagreed on the exact timing of the move or the trigger for action.
Traders are now fully pricing a move in April, with almost 150 basis points of easing priced in for the year.