The dollar started the week on a steady note as investors concentrated on assessing the implications of U.S. economic data prior to this week’s Federal Reserve meeting, while escalating geopolitical tensions in the Middle East curbed risk appetite.
There was no significant change in the dollar index, which tracks the performance of the US currency against a basket of six competing currencies.
On Monday, it registered at 103.50, remaining close to its six-week high of 103.82, which was reached last week.
The index is on its way to record a 2 percent increase in January amidst a decline in traders’ expectations for an imminent and significant cut in U.S. interest rates.
In December, the U.S. Federal Reserve took the markets by surprise with its tendency toward initiating monetary easing and forecasted a significant 75 basis point cut in interest rates by the year 2024.
This prompted traders to anticipate the commencement of sizable interest rate reductions as early as March.
However, since then, robust economic data and resistance from central bank officials have prompted a revision in their expectations. According to the “Fed Watch” tool from the CME Group, markets are currently foreseeing a 48 percent chance of an interest rate cut in March, down from an 86 percent likelihood predicted at the end of December.
This week, investors will focus their attention on the Federal Reserve’s monetary policy meeting in the United States, which will take place over two days starting on Tuesday. It is widely anticipated that the central bank will maintain interest rates at their current level, putting the spotlight on statements from Federal Reserve Chair Jerome Powell.
Investors will also be keeping an eye on a series of economic data, including US unemployment and employment reports, which will help measure the strength of the job market.
The euro declined by 0.08 percent to $1.0842, heading for a two percent decrease this month. Last week, the European Central Bank maintained interest rates at a record high level of four percent and reaffirmed its commitment to combating inflation.
The Sterling pound recorded a slight increase of 0.01 percent to $1.2704 during the day, preceding the scheduled monetary policy meeting of the Bank of England this week.
The Japanese yen saw a slight increase to 148.07 against the dollar, however, it is on track to record a 5% decline in January, which would represent its weakest monthly performance since June 2022. This is occurring as traders have scaled back their expectations on when the Bank of Japan might abandon its highly accommodative monetary policy.
From a geopolitical standpoint, investors are also anxious about the escalating risks following the death of three American servicemen in a drone attack on US forces in northeastern Jordan, near the Syrian border.
The Australian dollar also rose by 0.29 percent to 0.6591 dollars, and the New Zealand dollar increased by 0.12 percent to 0.60975 dollars.
Regarding cryptocurrencies, Bitcoin saw an increase of 0.55 percent in recent transactions, reaching a value of 42,016 dollars.
