Key facts
- The U.S. dollar index rose 0.03% to 101.55.
- The euro fell 0.01% to $1.1366 against the dollar.
- The dollar gained 0.05% to 163.82 against the Japanese yen.
- Sterling eased 0.02% to $1.3284.
- Market expectations for a Fed rate hike at the upcoming meeting increased to 36.3%.
- Markets are pricing in an 81% chance of a Fed hike in September.
- Bitcoin fell 1.88% to $63,694.59.
- Ether declined 2.83% to $1,890.30.
The U.S. dollar maintained a one-month high on Tuesday as traders assessed the possibility of a Federal Reserve rate hike at its upcoming meeting. This strength in the dollar comes despite a decrease in oil prices, which had previously fueled inflation concerns. The dollar index, tracking the greenback against a basket of major currencies, saw a slight increase.
Market sentiment is influenced by the Federal Reserve's policy meeting concluding on Wednesday. A growing number of financial institutions believe there is a significant risk of the Fed implementing another rate hike, driven by recent surges in oil prices and heightened geopolitical tensions in the Middle East. CME FedWatch data shows expectations for a 25 basis point hike at the current meeting have risen to 36.3%, up from 16% a week prior, with an 81% probability priced in for a September increase.
Analysts suggest that a surprise rate hike by the Fed would likely bolster the dollar, potentially leading to new highs, particularly against currencies with lower yields like the Japanese yen and Swiss franc. Investors are also awaiting key U.S. economic data, including second-quarter GDP figures and the core PCE inflation gauge, for further insights into the health of the U.S. economy.
In a busy week for central banks, the Bank of England and the Bank of Japan are widely anticipated to keep their interest rates unchanged. The Bank of Japan, in particular, faces pressure to support the yen, which is near 40-year lows against the dollar. While policymakers are expected to maintain an ambiguous stance on future moves, they may adopt a hawkish tone to signal credibility in their inflation mandate and currency support efforts.
Other major currencies experienced declines against the dollar, with the Australian dollar weakening by 0.11% and New Zealand's kiwi falling by 0.12%. In the cryptocurrency market, both Bitcoin and Ether saw notable decreases.