FOREX-Dollar set for fourth monthly drop as Fed meeting looms

BY Reuters | ECONOMIC | 01/30/23 08:22 PM EST
       By Tom Westbrook
       SINGAPORE, Jan 31 (Reuters) - The dollar was eyeing a
fourth monthly loss on Tuesday as investors reckon a peak in
U.S. interest rates could swing into view as soon as this week's
Federal Reserve meeting.
    Currency trade was subdued in the lead up to Wednesday's Fed
rate decision, and ahead of Bank of England and European Central
Bank rate decisions on Thursday, though cautiousness across
financial markets lifted the greenback a little bit overnight.
    The euro rose as far as $1.0913 after data showed
Spanish inflation running surprisingly hot in January, before
the broader mood reeled it back to $1.0851. The common currency
is up 1.3% this month and is loitering near a nine-month peak.
    The U.S. dollar index is down 1.3% for January so
far, though it rose 0.3% to 102.19 overnight. The Japanese yen
 fell 0.4% overnight but is set for its third monthly
gain as markets anticipate shifts in monetary policy.
    Sterling and the Australian, New Zealand and Canadian
dollars also made overnight losses but are set for monthly
    The Aussie fell 0.7% overnight, but at $0.7060 it
is up about 3.6% for the month so far. The kiwi, last
at $0.6474, is up almost 2% for January.
    "Technically I think they're looking a little bit tired,"
said Tony Sycamore, an analyst at brokerage IG Markets in
Sydney, referring to currencies rallying against the dollar,
with investor caution and month-end dollar buying also
contributing to Monday's moves.
    Interest-rate futures indicate market expectations
for a 25 basis point (bp) hike from the Federal Reserve to take
the Fed funds rate window to 4.5%-4.75%. Pricing suggests two
more 25 bp hikes are expected, before cuts arrive later in the
    "Traders will need to marry the tone of the statement and
(Fed chair Jerome) Powell's press conference with this pricing
structure," said Chris Weston, head of research at broker
Pepperstone in Melbourne.
    "In the less likely outcome that the Fed give the impression
that they could pause after this week's hike, then the U.S.
dollar could easily sell off and risky assets rally."
    Ahead of the Fed, traders await Chinese manufacturing data
and Australian retail sales figures later on Tuesday, as well as
a preliminary reading for euro zone gross domestic product.
    U.S. employment cost data will also be closely watched
because the labour market can guide monetary policy.
    "It is probably too late to have too much influence on the
ultimate size of the widely expected 25bp rate hike that is due
to be announced on Wednesday," said NatWest Markets' U.S. rates
strategist Jan Nevruzi. "But results from the report will play a
big role in the tone Powell uses in his press conference."
    Currency bid prices at 0100 GMT
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change
                              $1.0853         $1.0852    +0.01%          +1.29%      +1.0857     +1.0848

                              130.2650        130.4600   -0.12%          -0.71%      +130.5200   +130.3000

 Euro/Yen         141.40          141.53     -0.09%          +0.78%      +141.6200   +141.4100

                              0.9245          0.9251     -0.04%          +0.01%      +0.9255     +0.9245

                              1.2361          1.2349     +0.11%          +2.22%      +1.2361     +1.2348

                              1.3383          1.3385     +0.00%          -1.22%      +1.3392     +1.3380

                              0.7050          0.7061     -0.12%          +3.45%      +0.7062     +0.7038

 Dollar/Dollar                0.6467          0.6469     -0.02%          +1.86%      +0.6474     +0.6462

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

 (Reporting by Tom Westbrook; Editing by Christian Schmollinger)

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.