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U.S. dollar sails higher as markets price in hefty Fed rate hike

Kitco News

NEW YORK, Sept 19 (Reuters) - The dollar rose against major currencies on Monday, trading within narrow ranges, ahead of a slew of central bank meetings this week led by the Federal Reserve, which is likely to raise interest rates by another 75 basis points (bps).

Volume was light overall, with markets in London and Tokyo closed for public holidays.

World stock markets remained on edge, however, and the dollar maintained its firm tone, given expectations that the Fed would maintain its aggressive tightening path until next year to contain stubbornly high inflation.

Fed funds futures have priced in a 81% chance of a 75 bps rate hike this week and a 19% probability of a 100-increase at the conclusion of the U.S. central bank's two-day policy meeting, according to Refinitiv data

The dollar index , which measures the currency against six counterparts, was up 0.1% at 109.62, not far from 20-year high of 110.79 hit on Sept. 7.

Since the beginning of the year, the dollar index has surged 14.7%, on track for its best yearly percentage gain in 18 years.

"Generally, the trend is your friend until the bend in the end. The dollar is going to follow that pretty well," said Amo Sahota, executive director, at FX consulting firm Klarity FX in San Francisco.

"Will there be more dollar strength before the FOMC (Federal Open Market Committee)? I think the market is going to pull a little bit here. It will go into a holding pattern and some consolidation," he added.

Dollar holding strong as markets brace for another aggressive Fed rate hike
Dollar holding strong as markets brace for another aggressive Fed rate hike

This week is also smattered with holidays that could thin liquidity and result in sharper price moves, with Japan and Britain off on Monday, Australia on Thursday, and Japan again on Friday, among others.

In other currencies, the euro was little changed against the dollar at $1.0021, sterling slipped 0.1% to $1.1424 and within sight of Friday's 37-year low of $1.13510, while the New Zealand fell 0.6% to US$0.5958 .

Earlier in the session, the New Zealand unit fell to its lowest since May 2020 of US$0.5933

The Canadian dollar fell to its lowest in almost two years to C$1.3354 per U.S. dollar . The U.S. dollar last changed hands at $1.3258, flat on the day.

Against the yen, the dollar rose 0.2% to $143.18, hovering beneath a strong resistance level at 145 that has been reinforced by Japanese policymakers' toughened talk of currency intervention.

The Bank of Japan is widely expected to stick with massive stimulus at its meeting on Wednesday and Thursday, keeping its ultra-loose policy in place. But a turning point in Japanese monetary policy may come sooner than has been thought, with the central bank recently dropping the word "temporary" for its description of elevated inflation. read more

China's yuan ended at a fresh 26-month low on Monday and traded below the psychologically critical 7-per-dollar level . In offshore trade, the yuan was 0.35 weaker .

Bitcoin , the biggest cryptocurrency by market value, fell to a three-month low below $19,000, as unease over rising interest rates globally knocked risk assets. read more It was last down 0.2% at $19,381.

Ether, the cryptocurrency used in the Ethereum blockchain, rallied from a two-month low against the dollar and was last 1.4% higher at $1,358.60.

Ethereum went through a major software upgrade last week that alters the way ether tokens are created, drastically reducing its energy usage. read more

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Currency bid prices at 3:19PM (1919 GMT)

Description
RIC
Last
U.S. Close Previous Session
Pct Change
YTD Pct Change
High Bid
Low Bid
Dollar index
109.6000
109.5500
+0.06%
14.569%
+110.1800
+109.4800
Euro/Dollar
$1.0022
$1.0015
+0.07%
-11.84%
+$1.0029
+$0.9966
Dollar/Yen
143.2100
142.9400
+0.19%
+24.40%
+143.6400
+142.6500
Euro/Yen
143.51
143.13
+0.27%
+10.12%
+143.5500
+142.8100
Dollar/Swiss
0.9645
0.9644
+0.17%
+5.90%
+0.9695
+0.9630
Sterling/Dollar
$1.1431
$1.1422
+0.08%
-15.48%
+$1.1441
+$1.1356
Dollar/Canadian
1.3255
1.3262
-0.06%
+4.83%
+1.3344
+1.3252
Aussie/Dollar
$0.6722
$0.6722
+0.03%
-7.50%
+$0.6734
+$0.6673
Euro/Swiss
0.9665
0.9660
+0.05%
-6.79%
+0.9671
+0.9634
Euro/Sterling
0.8764
0.8768
-0.05%
+4.33%
+0.8787
+0.8748
NZ Dollar/Dollar
$0.5958
$0.5989
-0.48%
-12.92%
+$0.6002
+$0.5929
Dollar/Norway
10.2225
10.2040
+0.20%
+16.06%
+10.3320
+10.1900
Euro/Norway
10.2472
10.2059
+0.40%
+2.35%
+10.3125
+10.2062
Dollar/Sweden
10.7823
10.7337
+0.48%
+19.57%
+10.8348
+10.7251
Euro/Sweden
10.8073
10.7560
+0.48%
+5.60%
+10.8244
+10.7571
Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Dhara Ranasinghe in London and Kevin Buckland in Tokyo; Editing by Bradley Perrett, Frank Jack Daniel, Paul Simao and Marguerita Choy
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