Tom Westbrook

SYDNEY – Monday’s dollar bounce was a result of investors preparing for January’s Federal Reserve meeting. The Fed raised expectations that the U.S. Federal Reserve will hold several rate hikes in 2019, while China stunned analysts with a benchmark drop.

Data on Chinese economic growth are due on Monday at 0200 GMT. A Bank of Japan policy meeting will conclude on Tuesday. British inflation data is expected on Wednesday. Australian employment figures on Thursday can also be viewed as traders evaluate the global policy outlook.

Dollar was 0.2% lower at 114.45 Japanese yen in Asia’s early session. This is 0.8% more than Friday’s low. The dollar edged 0.1% higher against the euro, to $1.1403.

The dollar surged on Friday with U.S. yields. These movements support the greenback from the favorable hawkish rates outlook.

After a sharp decline last week, it rose to 95.225 in Asia Monday.

Ray Attrill, National Australia Bank’s Head of Foreign Exchange Strategy said that Friday’s action suggests to him that dollar strength’s interest rate driver is still alive and well.

Although he said that it might not return to driving new dollar highs immediately, he added: “We have had a hawkish turn out of every Fed Meeting since June last year.”

Although the Fed will not move rates at its January 25-26 meeting, there are growing hawkish comments from both within and without it.

Jamie Dimon from J.P. Morgan, the CEO of J.P. Morgan, said last week that there might be six or seven hikes in this year’s inflation. Bill Ackman, the billionaire head of a hedge fund managed by Bill Ackman suggested over Twitter (NYSE.) on Saturday the possibility to increase the initial 50 basis points.

On Monday, the cash Treasury market closed. However, 10-year futures fell to a 2-year low. Fed funds futures dropped as well. This is a reflection of a growing conviction that there will be at least four more hikes by 2022.

Australian and New Zealand Dollars fell sharply Friday. They were still under pressure Monday. Last week, the dollar was 0.2% lower at $0.7200. This is after a short rise above resistance of $0.7276. [AUD/]

It was 0.2% less at $0.6791.

China’s bonds rose and the yuan fell after the central bank reduced borrowing costs for medium term loans. This was contrary to market expectations.

After the change, ten-year government bonds futures rose to the highest level since June 2020. The yuan started onshore trading marginally softer at 6.3555 per $1.

Chinese Gross Domestic Product figures, due 0200 GMT at 2300 GMT, are likely to indicate annual growth of 2%. This is because property prices have a negative impact on the market.

A month-long rally in sterling fell below its 200-day moving median. The currency was steady at $1.3669 Monday but analysts predict that it will resume its gains if inflation data proves the case for higher rates.

Joe Capurso from the Commonwealth Bank of Australia (OTC), strategist, stated: “Interest Rate Markets are pricing an 80%+ probability of a Bank of England 25 bprate rate hike on 3 February.”

A faster pace of inflation might see prices move closer towards 100%

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Prices for currency bids at 0139 GMT

Description: RIC U.S. Last Close Pct. Change YTD High Bid Low

Previous changes

Session

Euro/Dollar

$1.1402 $1.1417 -0.13% +0.29% +1.1425 +1.1401

Dollar/Yen

114.4500 114.2250 +0.20% -0.50% +114.5050 +114.2800

Euro/Yen

130.51 130.36 +0.12% +0.15% +130.5500 +130.3200

Dollar/Swiss

0.9156 0.9140 +0.17% +0.37% +0.9158 +0.9143

Sterling/Dollar

1.3665 1.3685 -0.14% +1.05% +1.3675 +1.3665

Dollar/Canadian

1.2549 1.2557 -0.06% -0.74% +1.2555 +1.2539

Aussie/Dollar

0.7200 0.7218 -0.24% -0.95% +0.7224 +0.7199

NZ

Dollar/Dollar 0.6790 0.6810 -0.28% -0.78% +0.6820 +0.6791

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