The dollar index was steady at 109.69, after pulling back from as high as 110.79 earlier this month, a level not seen since June 2002
The dollar remained strong around a two-decade high versus major peers on Tuesday as investors held firm in expectation of another aggressive rate hike by the Federal Reserve to rein in inflation.
Sweden’s central bank set the tone for a packed week of central bank meetings by raising rates by a full percentage point, a larger increase than analysts had expected, causing the Swedish crown to briefly spike against the euro and dollar.
The crown was last little changed versus both at 10.764 per dollar and 10.8 per euro having briefly firmed to as much as 10.7025 per euro.
The main central bank event this week, however, is the Fed, which begins its two-day rate-setting meeting later on Tuesday. Markets have fully priced another 75 basis point increase, with around a 15% chance of a super-sized full percentage point increase, according to CME’s Fedwatch tool.
The dollar index, which measures the greenback against six counterparts, was steady at 109.69, stable for the moment after pulling back from as high as 110.79 earlier this month, a level not seen since June 2002.
There seems no reason for the Fed to soften the hawkishness shown at the recent Jackson Hole symposium and a 75bp ‘hawkish hike’ should keep the dollar near its highs of the year, said ING analysts who expect the dollar to have a ‘a quiet, pre-FOMC session today.’
Providing additional support, the two-year U.S. Treasury yield, which is extremely sensitive to policy expectations, rose as high as 3.973% in early London trade, its highest since November 2007.
The euro managed to squeeze back above parity with the dollar, and was at $1.0016. It dropped as low as $0.9864 on Sept. 6 for the first time in two decades.
