Dollar Edges Higher; Fed Speakers, Including Powell, in Focus

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Dollar Edges Higher; Fed Speakers, Including Powell, in Focus
Credit: © Reuters.

By Peter Nurse

Investing.com - The U.S. dollar edged higher Monday, trading in a tight range ahead of comments from Federal Reserve chair Jerome Powell later in the session, just a few days after the U.S. central bank started its tightening cycle. 

At 4 AM ET (0800 GMT), the US Dollar Index , which tracks the greenback against a basket of six other currencies, traded marginally higher at 98.263.

The U.S. Federal Reserve raised its key interest rate by 25 basis points last week for the first time since the pandemic. This is expected to be the start of an aggressive tightening cycle given the soaring inflation, and thus traders will be looking for clues on the speed and size of future rate hikes.

Fed Chair Jerome Powell is set to speak later Monday about the economic outlook at the annual conference of the National Association for Business Economics, ahead of a raft of speeches from other Fed officials during the week, including Powell himself making another appearance on Wednesday.

“There is a camp arguing that the dollar typically sells off in the first six months of a Fed tightening cycle - presumably on the 'buy-the-rumor, sell-the-fact' mentality of a well-telegraphed tightening cycle,” said analysts at ING, in a note. “What is different this time, in our opinion, is the aggressive front-loaded tightening about to be undertaken by the Fed and events in Ukraine which have damaged European growth prospects and will weigh on currencies in the region.”

EUR/USD fell 0.1% to 1.1051, and GBP/USD dropped 0.2% to 1.3160, with both currencies hit by expectations of weaker European economic growth as the Ukraine war rages on, lifting energy costs.

That said, in the short term, speeches this week by several policymakers at the European Central Bank , including president Christine Lagarde, could influence the direction of the euro, in particular.

USD/JPY edged higher to 119.22, not far removed from the six-year peak of 119.39 touched on Friday. The yen has come under severe pressure against the greenback, falling 1.6% last week, as the gap between U.S. and Japanese interest rates widens.

Bank of Japan kept its dovish policy on Friday, which contrasted with the Fed hiking its interest rate the previous Wednesday.

AUD/USD dropped 0.3% to 0.7392, after the recent strong rally due to higher commodity prices, while NZD/USD fell 0.1% to 0.6895.

USD/RUB rose 0.3% to 105.0994, with fighting continuing in Ukraine, particularly around the south-eastern city of Mariupol, with Ukraine rejecting a Russian demand that its forces lay down their arms and leave the city.

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