Markets fully priced in another 75 basis point hike, with about a 15% chance of a one percentage point rise.according to CME’s Fedwatch tool.
In that framework, The dollar index, which measures the performance of the greenback against six currencies, rose 0.5% to 110.10 units, close to the 110.79 it reached at the beginning of the month, a level not seen since June 2002.
The Swedish central bank set the tone for the week by raising interest rates by one percentage point on Tuesday. The Riksbank’s rate hike was larger than analysts expected, sending the Swedish krona briefly higher against the euro and the dollar.
However, it failed to maintain that strength and the euro extended its recent gains, rising to a six-month high of 10.8808 kroons. The dollar was also up 0.6% at 10.8994 kroons.
The yield on two-year US Treasury bonds, highly sensitive to rate expectations, rose to 3.992%, its highest since November 2007.
For its part, the euro lost 0.6% and traded at 0.9966 dollars. On September 6 it fell as low as $0.9864 for the first time in two decades, while the battered British pound held a bit firmer at $1.1446.
Meanwhile, the Bank of England will decide its monetary policy on Thursday, and investors are divided on the possibility of a rate hike of 50 or 75 basis points.
The Bank of Japan is also meeting this week but is expected to keep its ultra-easy policy unchanged – including pegging the 10-year yield near zero – to support the fragile economic recovery.
The yen has been affected by this policy, with the dollar rising 0.4% against the Japanese currency at 143.78 yen, continuing a week-long consolidation, after hitting 144.99 yen on 7th January. September, for the first time in 24 years.
Source: Ambito
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