Dollar near its 16-month high, waiting on Fed’s policy

The dollar remained near its 16-month high versus foreign peers on Monday, while the traders are still waiting for the signals on the U.S. economy. Last week, the bets were on a Federal Reserve interest rate increase, following the uprising inflation.

The dollar index measures the dollar against foreign peers. It touched 95.120 since Friday before it had its biggest weekly gain since August and touched 95.266 for the first time since July 2020. The main event on the U.S. economy this week will be Tuesday’s retail sales data. Especially after Friday’s survey showed that consumer confidence had declined to near a decade low in November due to recent high inflation rates. 

Federal Reserve Policies can change the market

Ray Attrill, the head of FX strategy at National Australia Bank in Sydney has indicated this week that it will be important to watch the U.S. consumers’ decisions rather than focusing on what they say. This is because the readings of sentiment were at odds with actual spending during the summer. 

The dollar has been on a surge since the last Wednesday. The data also showed a broad rise in U.S. consumer prices last month. This rate increase has been the fastest annual pace since 1990, creating doubts on the Fed’s statement that declared the price pressure would be transitory.

Market Fluctuations this Week

Money markets are showing signs of pricing the first-rate increase by July. The anticipations are that another pricing will be seen by November next year as of the end of last week.

Earlier this month, the European Central Bank showed its unwillingness to change the slow economy’s dovish policies. These unchanging policies lead to gains in the heavily euro-weighted dollar index. The euro had little change around the $1.14455 level but stayed within Friday’s 16-month low range of $1.1433.

On Monday, Christine Lagarde, the ECB president, will speak before the Committee on subjects regarding the Economic and Monetary Affairs and policies of the European Parliament.

The dollar had a slight increase and was at 113.965 yen, consolidating around the 114 level since the last Wednesday. Sterling also had a 0.08% increase in price at $1.3421. It is continuing its rebound from this year’s low of $1.3354, marked on Friday.

The Australian dollar, on the other hand, was relatively stable at $0.7331. It had a 0.54% increase in value the last Friday as it keeps recovering from a one-month low of $0.7277 which was reached on the same day.

China should release activity data on Monday. Also, any comments coming out of a virtual summit between China and the U.S. President can greatly impact the investors’ decisions.