US dollar gains as Fed seen wrapping up asset purchases earlier than expected

NEW YORK: The dollar firmed on Monday ahead of a slew of central bank meetings this week led by the Federal Reserve with investors expecting the US central bank to announce it will wrap up its bond purchases sooner than expected, as they look for clues on timing of interest rate increases next year.

Aside from the Fed, the European Central Bank, Bank of Japan, Bank of England, Swiss National Bank, and Norges Bank, among others, all have policy decisions in the next few days. The euro fell, as it is seen as vulnerable to a rate hike in the United States given expectations that the Fed will tighten policy more quickly than the dovish ECB.

The dollar index, which measures the greenback against six major peers, was up 0.2% at 96.286. The euro was down 0.3% at $1.1285.

Against the yen, the dollar was up 0.1% at 113.525 yen.

“While markets have moved to price in a quicker taper and a more aggressive tightening path from the Fed, there is still some scope for surprises this week - perhaps from a hawkish shift in the dot plot or the Fed deploying language that indicates a quicker shift to generally tighter monetary conditions,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto. “A hawkish-sounding Fed is likely to contrast with dovish messaging from the ECB and BoJ in particular.” That said, some analysts believe the dollar’s march higher in recent weeks has already factored in many of its possible sources of strength in the short term.

“Going to next year, I don’t feel the same degree of dollar bullishness as the consensus estimates,” said Kamakshya Trivedi, co-head of global FX, rates and EM strategy at Goldman Sachs.

“For example, if we start to see higher commodity prices and decent data from China, the dollar may be on the back foot after a good run.”

The pound dipped 0.2% to $1.3247 after Prime Minister Boris Johnson said on Sunday Britain faced an Omicron “tidal wave”. On Monday he said at least one person has died in the UK due to the latest variant.

The Swiss franc was down versus the dollar, which was last up 0.1% at 0.9219 francs, while the euro was down 0.1% at 1.0410 francs.

Moves in the franc came as the Swiss National Bank’s sight deposits rose by their highest amount in seven months last week, indicating policymakers are taking the first decisive steps to battle a rise in the value of the franc against its major rivals, particularly the euro. The SNB, which has been battling the appreciation of the franc since the start of the pandemic, is due to make its latest interest rate decision on Thursday. Bitcoin fell 4.7% to $47,787 after hitting levels above $50,000 on Sunday. Ether, the coin linked to the Ethereum blockchain, dropped 5.3% to $3,915.