September 25, 2023

USD Maintains Strength as Market Await Fed Policy Announcement

The US Dollar continues to be strong within a twenty-year high against its main peers in the global money market as the trade went on Tuesday. Investors remained in constant anticipation of a hawkish interest rate increment from the US Federal Reserve as it promises to bring inflation to a standstill.

Sweden Leads the Way

Meanwhile, the Swedish central bank has led the way for other central banks in this week’s events of interest rate increments. The Swedish central bank raised rates by 100 basis points. It is more than what financial analysts had anticipated and it has caused the Swedish Krona to rise briefly above the US Dollar and Euro.

The Krona changed last against both currencies at 10.8 to the Euro and 10.764 to the Dollar after it was first briefly at 10.7025 to the Euro.

The major event of the central bank coming this week is the Federal Reserve’s two-day meeting which will begin later on Tuesday. The market has priced in a 75-basis points interest rate increase. But there is a 15% bet that there would be a 100 basis points raise.

The US Dollar index maintained a steady position at 109.69. It was steady for a time after it drew back from a high position of 110.79 earlier in the month. It was a high level that it had not gotten to since 2002.

The Dollar Keeps gaining

Analysts at ING said they expect the Dollar to experience a calm session before the Feds’ meeting begins today. They said further that there is no reason why the Federal Reserve should tone down its hawkish policies as announced during the Jackson Hole conference. A 75 basis points increase should, then, maintain the Dollar close to its high level this year.

The two-year Treasury bond yields gave more support to the Dollar as it rose by 3.973% during the early hours of London trade. It is its highest point since 2007. Note that the two-year bond yield is very sensitive to coming policies.

The Euro has given much effort into getting above its parity with the US Dollar as it struck $1.0016. the Euro fell to $0.9864 on the 6th of September for the first time in twenty years. The British Pound went higher at $1.1458 although it is still within its low level that hasn’t been seen in 37 years which was $1.13510 which it suffered in the past week.

The Bank of England will make an announcement of its policy decision on Thursday. Investors are currently divided on if to expect a 50 basis points increment or a 75 basis points one. The Bank of Japan is also scheduled to meet this week, but it is like to continue with its stimulus monetary policy to aid the weak economy.

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