US Dollar Index to ease lower on a Fed that is perceived as less hawkish – OCBC

 The US Dollar Index (DXY) is rising to the 110.00 area following Friday's retreat. This week’s FOMC meeting could send the DXY lower if the Fed is perceived less hawkish than expected, in the opinion of economists at OCBC Bank.

Caution to keep USD supported on dips in the lead-up to FOMC

“While a hawkish Fed is now the baseline scenario, we caution that a Fed that is perceived as less hawkish could see DXY ease lower post-decision. Meantime, in the lead-up to FOMC, expect caution to keep USD broadly supported on dips.”

“Support at 109.30 (21 DMA), 108.45 (38.2% Fibo retracement of Aug low to Sep high) and 107.70 levels (50-DMA, 50% Fibo).”

“Resistance at 110.30 before 110.78 (previous high).”

At 24h tonight, the Fed will publish the minutes of the FOMC's monetary policy meeting

 

At 24h tonight, the Fed will publish the minutes of the FOMC's monetary policy meeting.  Federal Reserve Chairman Jerome Powell previously said that the Fed will set a limit on its balance sheet cuts at its March meeting. Additionally, Fed chief Brainard said the Fed could quickly shrink the board.  balance sheet since May, and it is expected that the shrinking pace of the balance sheet will be much faster than the previous recovery. Therefore, expect the minutes of tonight's monetary policy meeting.  basically digested.  Market focus remains on Ukraine and Russia situation and inflation expectations.  According to NBC News, the US and G7 will announce new sanctions against Russia on Wednesday.  New US sanctions against Russia will include a ban on new investments in Russia, increased sanctions on Russian financial institutions and state-owned enterprises, and measures  sanctions against Russian government officials and their family members

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Dollar Edges Higher; Inflation Data To Cement Early Fed Hikes

 The U.S. dollar edged higher in early European trade Monday, with traders expecting the release of key U.S. inflation data this week to boost the chances of early Federal Reserve interest rate hikes. 

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 95.915.

USD/JPY rose 0.2% to 115.78, close to last week's five-year high of 116.35, EUR/USD fell 0.2% to 1.1332, GBP/USD edged higher to 1.3588, while the risk-sensitive AUD/USD climbed 0.2% to 0.7195.

The greenback is recovering from Friday’s hit after a weaker-than-expected U.S. jobs report for December, with attention now firmly switching towards the release of key December inflation data.

“The key for Fed policy now is not the labor market but inflation, and this week's December CPI report is expected to show further acceleration,” said Marc Chandler, Chief Market Strategist at Bannockburn Global Forex.

“Even after the employment report, the December Fed Funds contract showed increased wagers of four hikes this year. The probability of a fourth hike is now slightly over 50% compared with a 40% of a third hike after the November jobs report on December 3.”

The consumer price inflation data, on Wednesday, is expected to show headline CPI breaking above 7% year-on-year, approaching a four-decade high, while producer price inflation data the following day is also expected to show a surge higher.

Fed Chairman Jerome Powell and governor Lael Brainard will also testify before Senate committees this week regarding their nominations as the Fed chair and deputy chair respectively.

Their comments over the potential for the central bank to tighten monetary policy this year will be closely studied, and they are the highlight of a week in which there will be numerous Fed speakers.

Also helping the dollar Monday are the continued tensions between the U.S. and Russia, primarily, over the former Soviet state’s intentions towards Ukraine.

Talks between the two principals begin on Monday in Geneva before moving to Brussels and Vienna, but Russia said on Sunday it would not make concessions under U.S. pressure and warned that the negotiations might end early.

Elsewhere, USD/RON rose 0.3% to 4.3613 with Romania’s central bank expected to lift interest rates later Monday to try and tackle soaring inflation in line with its peers in the region. 

The central bank is seen increasing its benchmark rate by 50 basis points to 2.25%, according to six of 11 economists surveyed by Bloomberg. The other five predicted a rise to 2%. Poland has already raised interest rates this year.