Dollar index jumps to two-decade high as traders wait for Fed rate move

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NEW YORK, June 14 (Reuters) – The dollar hit a fresh two-decade high against a basket of currencies on Tuesday as traders braced for an aggressive US Federal Reserve rate hike this week to try to tame inflation to contain

Investors were unsettled this week by rising expectations that the Fed will hike interest rates more than forecast, sending the S&P 500 (.SPX) plummeting to confirm a bear market and heightened worries about the economic outlook. Continue reading

According to Refinitiv’s Fedwatch tool, nearly 90% expect a 75 basis point hike at the close of a two-day meeting of the Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday.

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“Given tomorrow’s expectations, it will be very difficult for the Fed to outperform the markets at this point,” said Karl Schamotta, chief market strategist at corporate payments firm Corpay.

The US dollar currency index, which tracks its performance against six other major currencies, rose 0.3% to 105.42 after rising to 105.46, its strongest since December 2002.

As inflation and growth concerns plague economies around the world, the greenback has benefited from safe-haven flows in recent weeks and months.

“The US dollar remains the best of the bad in the forex country,” said Michael Brown, head of market research at payments firm Caxton in London.

“Today’s trading is fairly classic dormancy ahead of the Fed, although I doubt it will last as a hawkish Fed is likely to provide the catalyst needed for further upside (for the dollar),” Brown said.

US producer prices rose solidly in May as gasoline prices soared, another sign of stubbornly high inflation that could force the Fed to aggressively hike rates. Continue reading

On weak risk appetite, the Aussie was down 0.81% against the greenback, while the Kiwi was down 0.80%.

The dollar was roughly unchanged against the yen at 134.97 yen.

The weakness of the Japanese currency — it fell to its lowest level against the dollar since 1998 on Monday — has prompted comments from Japan’s top government spokesman that Tokyo is concerned about its sharp decline and stands ready to “act appropriately” if necessary. Continue reading

“Intervention remains extremely unlikely as it would be unilateral in nature. … It would not necessarily stem the tide on the yen’s eventual path,” Corpay’s Schamotta said.

Sterling fell 1.29% to $1.1978, the first drop below $1.20 since March 2020, after Scotland’s First Minister Nicola Sturgeon said she would share details of plans for a new independence referendum. British Prime Minister Boris Johnson and his Conservative Party, the opposition party in Scotland, are firmly opposed to a referendum. Continue reading

Bitcoin slipped to a fresh 18-month low as a payout freeze from major crypto lender Celsius Network and the prospect of sharp U.S. interest rate hikes rocked the volatile asset class. Bitcoin was last down 3.6% to $22,365.86. Continue reading

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Reporting by Saqib Iqbal Ahmed; Editing by Susan Fenton and Jonathan Oatis

Our standards: The Thomson Reuters Trust Policy.

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