FOREX-Dollar finds a footing as traders brace for hawkish Fed

BY Reuters | ECONOMIC | 01/16/22 08:41 PM EST
       * Dollar holds Friday's jump in Asia
    * Bounce extends to 114.45 yen; Fed funds futures fall
    * China makes surprise 10 bps MLF cut

    By Tom Westbrook
    SYDNEY, Jan 17 (Reuters) - The dollar clung to a late week
bounce on Monday as investors braced for January's U.S. Federal
Reserve meeting and raised bets it will chart a year ahead
holding several rate hikes, while China surprised analysts with
a benchmark cut.
    Chinese economic growth data, due later on Monday (0200
GMT), a Bank of Japan policy meeting which concludes on Tuesday,
British inflation data on Wednesday and Australian jobs figures
on Thursday are also in view as traders gauge the global policy
outlook.
    The dollar was 0.2% higher at 114.45 yen early in
the Asia session, about 0.8% above a Friday low. It also edged
about 0.1% firmer on the euro to $1.1403.
    The moves follow the dollar's jump on Friday along with U.S.
yields and underscore support for the greenback from the hawkish
rates outlook, even if momentum for gains has started to wane.
    The U.S. dollar index, which declined sharply last
week until Friday's leap, sat at 95.225 in Asia on Monday.
    "Friday's move suggest to me that the interest rate driver
for dollar strength is not dead and buried," said National
Australia Bank's head of foreign exchange strategy Ray Attrill.
    He said it may not necessarily return to drive new dollar
highs, but added: "We've had a hawkish twist out of every Fed
meeting since June last year."
    The Fed meets Jan. 25-26 and is not expected to move rates,
but there is a growing drumbeat of hawkish comments coming from
within and outside the central bank.
    Last week, J.P. Morgan CEO Jamie Dimon remarked that there
could be "six or seven" hikes this year and billionaire hedge
fund manager Bill Ackman floated on Twitter over the weekend the
possibility of an initial 50 basis point hike to tame inflation.
    The cash Treasury market was closed for a holiday on Monday
but 10-year futures were sold to a two-year low and Fed
funds futures also fell, reflecting a strengthening
conviction in the market of at least four hikes in 2022.
    The Australian and New Zealand dollars, which dropped
sharply on Friday, remained under pressure on Monday. The Aussie
 was last down 0.2% at $0.7200, ending for now a brief
foray above resistance around $0.7276.
    The kiwi edged 0.2% lower to $0.6791.
    In China, bonds rallied and the yuan slipped 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 rose to their
highest since June 2020 after the move and the yuan
began onshore trade marginally softer at 6.3555 per dollar.
    Chinese gross domestic product figures due at 0200 GMT are
expected to show annual growth at its slowest in 18 months as a
property downturn drags on demand.
    Elsewhere a month-long rally for sterling has
petered out around its 200-day moving average. It held at
$1.3669 on Monday, but analysts say it could resume gains if
inflation data makes the case for higher interest rates.
    "Interest rate markets are currently pricing an 80% + chance
of a 25 bp rate hike by the Bank of England on 3 February," said
Commonwealth Bank of Australia strategist Joe Capurso.
    "A quicker pace of inflation could see pricing move closer
to 100%."

    ========================================================
    Currency bid prices at 0139 GMT
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change
                                              Session
 Euro/Dollar                  $1.1402        $1.1417     -0.13%         +0.29%      +1.1425     +1.1401
 Dollar/Yen                   114.4500       114.2250    +0.20%         -0.50%      +114.5050   +114.2800
 Euro/Yen         Dollar/Swiss                 0.9156         0.9140      +0.17%         +0.37%      +0.9158     +0.9143
 Sterling/Dollar              1.3665         1.3685      -0.14%         +1.05%      +1.3675     +1.3665
 Dollar/Canadian              1.2549         1.2557      -0.06%         -0.74%      +1.2555     +1.2539
 Aussie/Dollar                0.7200         0.7218      -0.24%         -0.95%      +0.7224     +0.7199
 NZ                           0.6790         0.6810      -0.28%         -0.78%      +0.6820     +0.6791
 Dollar/Dollar


All spots
Tokyo spots
Europe spots
Volatilities
Tokyo Forex market info from BOJ


 (Reporting by Tom Westbrook; Editing by Jacqueline Wong)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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