Dollar hits 2-week high a day ahead of Fed decision, euro slips on French worries
Investing.com — The U.S. dollar hit a two-week high on Tuesday, a day ahead of a key Federal Reserve interest rate decision. Reserve banks are the norm this week, with rate moves also scheduled from global institutions such as the European Central Bank, the Bank of Japan, and the Bank of Canada.
The dollar’s move came amid a risk-on session on Wall Street as traders snapped up the artificial intelligence trade. A slide in the euro on French fiscal jitters also helped.
The U.S. dollar index, which tracks the greenback against a basket of six major peers, climbed 0.4% to 102.37.
Fed in the cross hairs
A week after little to no catalysts for currency market participants in terms of economic data or Fed action, this week offers plenty of both.
The Federal Open Market Committee (FOMC) on Tuesday kicked off its two-day meeting, at the end of which it is broadly expected to leave rates unchanged, after having hiked rates in September for the first time since 2023.
The odds of no action from the FOMC have been reinforced despite hotter-than-expected U.S. consumer and producer inflation reports earlier this month, following Fed Chair Kevin Warsh recently declining to provide any guidance on the decision.
Traders will also receive two key indicators on the economy a day after the Fed decision: Q3 U.S. gross domestic product data and the September reading of the personal consumption expenditures price index – the Fed’s preferred inflation gauge.
“Recent Fed commentary suggests that the core of the Committee wants more time to assess the impact of September’s hike. We expect the FOMC to leave the policy rate unchanged on Wednesday, with hawkish dissents from Hammack and Logan and a risk that Kashkari also votes to hike,” JPMorgan analysts led by Alex Gallin said on Monday.
“The Committee is likely to signal a hiking bias through changes to the statement language, consistent with our forecast for a December move. Meanwhile, Thursday’s GDP report should show that growth rose 3.5%ar in 3Q on a broader base. Consumer spending likely weakened in September and should slow further in 4Q, but some moderation would not be surprising after a strong quarter,” they added.
Euro dips, yen weakens
Over in Europe, the single currency dropped 0.5% to $1.1122, a near two-week low and down about 1.5% in October.
A selloff in French government bonds last week drove the country’s debt-risk premium to its highest since the 2011 sovereign debt crisis, rekindling concerns about financial stress across the euro zone. France’s 10-year yield touched 5.14% last week, its highest since 2002, and recovered on Monday after Moody’s spared Paris a downgrade on Friday, but Barclays strategists said French stress is unlikely to fade before next spring’s presidential election.
