SYDNEY — The dollar latched on to a weekend rebound on Monday as investors braced for January’s U.S. Federal Reserve meeting and raised bets that it will chart a year ahead by holding several rate hikes, while China surprised analysts with a benchmark drop.
Chinese economic growth data, due later on Monday (0200 GMT), a Bank of Japan policy meeting which ends on Tuesday, UK inflation data on Wednesday and Australian jobs figures on Thursday are also in view as traders assess the global political outlook.
The dollar was up 0.2% at 114.45 yen at the start of the Asian session, about 0.8% above Friday’s low. It was also up slightly by around 0.1% on the euro at $1.1403.
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The moves track Friday’s jump in the dollar as well as US yields and underscore the greenback’s support from the hawkish rate outlook, even as earnings momentum has started to wane.
The U.S. dollar index, which fell sharply last week until Friday’s jump, stood at 95.225 in Asia on Monday.
“Friday’s decision suggests to me that the interest rate driver for dollar strength is not dead and buried,” said Ray Attrill, head of currency strategy at National Australia Bank.
He said he wouldn’t necessarily return to drive new dollar highs, but added: “We’ve had a hawkish spin at every Fed meeting since June of last year.”
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The Fed meets Jan. 25-26 and is not expected to change rates, but there is a growing drumbeat of hawkish comments from inside and outside the central bank.
Last week, JP Morgan CEO Jamie Dimon remarked that there could be “six or seven” hikes this year and billionaire hedge fund manager Bill Ackman tweeted over the weekend about the rise. possibility of an initial hike of 50 basis points to control inflation.
The cash Treasury market was closed for a bank holiday on Monday, but 10-year futures were sold to a two-year low and fed funds futures also fell, reflecting a strengthening of the market conviction of at least four increases in 2022.
The Australian and New Zealand dollars, which fell sharply on Friday, remained under pressure on Monday. The Aussie was last down 0.2% at $0.7200, ending a brief foray above resistance around $0.7276 for now.
The kiwi edged down 0.2% to $0.6791.
In China, bonds rallied and the yuan fell after the central bank cut borrowing costs for medium-term loans for the first time since April 2020, defying market expectations.
Ten-year government bond futures hit their highest level since June 2020 after the move and the yuan started onshore trading slightly weaker at 6.3555 to the dollar.
China’s gross domestic product figures due at 0200 GMT are expected to show the slowest annual growth in 18 months as a housing slowdown weighs on demand.
Elsewhere, a month-long rally for the pound petered out around its 200-day moving average. It held steady at $1.3669 on Monday, but analysts say it could resume gains if inflation data argues for higher interest rates.
“Interest rate markets are currently pricing in an 80%+ chance of a 25 basis point rate hike by the Bank of England on February 3,” said Commonwealth Bank of Australia strategist Joe Capurso. .
“A faster pace of inflation could push prices closer to 100 percent.”