The dollar was strong on Monday as traders prepared for a dramatic increase in U.S. interest rates this week and sought protection as evidence of a slowing global economy emerged.
In the Asia session, the dollar was somewhat stronger than most other major currencies, trading at $1.0208 on the euro and recouping some of Friday’s losses to purchase 136.26 Japanese yen.
On Wednesday, the U.S. Federal Reserve will wrap up a two-day meeting, and the markets are pricing in a rate increase of 75 basis points (bp), with a 9 percent probability of a rate increase of 100 bp. According to Rodrigo Catril, currency strategist at National Australia Bank (OTC: NABZY) the market reaction will depend on how hawkish Chair Jerome Powell sounds with his commitment to controlling inflation in the face of slowing GDP.
Here Is What Experts Have to Say
Given the uncertainty surrounding the global economy, traders have begun to ease up on tightening forecasts because they are concerned that a fragile economy can only survive so many rate increases. However, investors have not yet pulled the dollar too far off historic highs.
The dollar index held steady on Monday at 106.650, barely below a two-decade high reached in mid-July at 109.290, and experts don’t see many obstacles standing in the way of the dollar moving upward. This idea gained support from statistics released on Friday, which revealed that the euro zone’s activity declined for the first time in a year, commercial activity in the United States shrank for the first time in almost two years this month, and growth in Britain was at a 17-month low.
With Europe’s economic expansion depending on Russian gas and China having sent stern warnings against a potential trip to Taiwan by U.S. Speaker Nancy Pelosi, geopolitical tension is also at an all-time high.
According to Societe Generale (OTC: SCGLY) strategist Kit Juckes, even the most positive outcome for Europe depends on energy security, which is unknown. For the time being, the euro is still effectively impossible to purchase.
