Dollar Up, Investors Wait for Latest Fed Policy Decision

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By Gina Lee

AiVIF.com – The dollar was up on Monday morning in Asia, with the U.S. Federal Reserve’s latest policy decision due later in the week.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.10% to 95.735 by 12:11 AM ET (5:11 AM GMT).

The USD/JPY pair was up 0.23% to 113.94.

The AUD/USD pair inched down 0.07% to 0.7178 and the NZD/USD pair inched down 0.02% to 0.6719.

The USD/CNY pair inched down 0.10% to 6.3326 while the GBP/USD pair inched up 0.01% to 1.3555.

"The Fed has got markets by the leash. And this week, it will once more tug and yank," HSBC co-head of Asian economics research Frederic Neumann said in a note.

A key driver currently driving the currency markets is when and how quickly central banks will hike interest rates and begin asset tapering.

"What will prompt investors to scurry about will be the guidance Chair Powell might give at his press conference about quantitative tightening later in 2022," said Neumann’s note, which added that he does not expect a policy change.

The Fed will hand down its policy decision on Wednesday, with some investors starting to speculate that it is possible, although unlikely, that the central bank will hike interest rates for the first time since early 2020.

"We consider the higher risk is the Fed’s statement portrays an urgency to act soon, likely in March 2022, in the face of very high inflation. The urgency could culminate in a decision to abruptly stop quantitative easing (QE) by mid-February," Commonwealth Bank of Australia analysts said in a note.

"A bullish statement and/or a faster end to the QE program could even encourage markets to price a risk of a 50bp rate hike in March," the note added, with the analysts predicting this would lead to a knee-jerk reaction higher in the dollar.

Investors also await the Bank of Canada’s policy decision, due to be handed down just ahead of the Fed’s. In Asia Pacific, Australia releases its consumer price index on Tuesday which will guide the Reserve Bank of Australia's stance in its policy decision to be handed down in February.

In cryptocurrencies, bitcoin traded at $36,026, after tumbling 10% on Friday and dropping as low as $34,000 on Saturday. Institutional investors’ increased exposure to cryptocurrencies means that their moves are more closely correlated with other risk assets, some investors warned.