Dollar creeps lower as large Fed rate hike looms

DOLLAR INDEX

DOLLAR INDEX is trading down 0.28% at 106.70

The dollar edged further away from recent 20-year highs on Wednesday ahead of the U.S. Federal Reserve policy meeting, at which the central bank is expected to raise rates by another 75 basis points to tame soaring inflation.

But moves in currency markets were modest as traders await the policy announcement at 1800 GMT.

Money markets are betting that the Fed will raise rates by 75 basis points (bps), with an outside chance of a larger 100 bps hike. Traders expect the Fed to take the rate to as high as 3.4% by year-end to help bring inflation back to target.

Bets on oversized rate hikes helped push the dollar index, which measures the dollar against a basket of six currencies, to its highest level in almost 20 years earlier this month at 109.29, with the greenback currently up 2.1% in July.

At 1055 GMT, the dollar index was down 0.2% at 106.93.

“Markets are taking a bit off the table before tonight’s Fed meeting,” said Simon Harvey, head of FX analysis at Monex Europe. “Barring any imminent headlines on European energy or political developments I think we will see very limited ranges.”

The euro edged 0.33% higher to $1.0149 but failed to recoup much of Tuesday’s 1.0% slide, its biggest fall in over two weeks, after fears of a European recession escalated when Russia further cut gas supplies to Europe through the Nord Stream 1 pipeline.

Analysts said it remained premature to short the dollar given the gas situation in Europe and rising yields in the European periphery, particularly Italy.

On technical fronts DOLLAR INDEX RSI stood at 54.70 and currently it is trading above all MA. So, BUY position can be taken with following target and stoploss: 

TRADE SIGNAL – : DOLLAR INDEX – BUY: 106.71, TARGET: 107.17, STOP LOSS : 106.19

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