HONG KONG: The dollar held most of last week's gains on Monday but hung just off 18-month highs against major currencies as ebbing market turbulence took some of the bid out of safe-haven assets.
The prospect that investors could see renewed volatility this week remains, however, with key Australian, UK and European central bank meetings taking place in the days ahead.
The euro was at $1.1161, up 0.16%, having fallen to $1.1119 on Friday, its weakest since June 2020. The Aussie was at $0.701, up 0.35%, after touching its lowest since July 2020 on Friday.
The greenback had its best week in seven months last week supported by investors seeking safety amid a sell-off in riskier assets and by analysts raising forecasts for US interest rate hikes.
Dollar set for sparkling week as hike expectations surge
MSCI's 50-country main world index is headed for its worst month since the start of the pandemic although Asian markets regained some composure on Monday.
Market pricing now suggests a more than 90% chance of at least four Fed rate hikes by the end of the year and a 67% chance of at least five.
"The USD 'smiled' again, drawing on a combination of rates repricing and much weaker risk sentiment," said analysts at Barclays.
Looking forward, they said the potential for further dollar gains based on rate hike expectations was limited, as last week's moves mean an "aggressive normalisation cycle" is now priced in, though weak and volatile equities could push it higher.
The dollar index, which measures the greenback against six major peers was at 97.131, down 0.1%, but still close to Friday's 18-month intraday top of 97.441.
The yen was at 115.47 per dollar, in the middle of its recent range, buffeted by the headwind of rising US rate expectations with little prospect of rate hikes at home, but supported by some demand for it as a safe-haven.
While US payroll figures are out on Friday, the focus this week shifts a little away from the Fed to other central banks.
Australia-watchers await the central bank's Tuesday meeting, amid rising expectations it will announce an end to its quantitative easing programme. That will be followed by a speech by the RBA's governor on Wednesday and a statement on monetary policy Friday.
The week "will go far to define the psychology of the market for the next few months," said Westpac analysts. "That QE will cease will not be a surprise, so the real focus is on the RBA's shifting economic view and its implications for the (benchmark) cash rate."
The Bank of England also holds its meeting on Thursday, with a Reuters poll of economists predicting a second rate hike in less than two months, as the BOE reverses more pandemic stimulus, after inflation jumped to its highest in nearly 30 years.
The European Central Bank also has a policy meeting on Thursday. While no policy change is expected, analysts are starting to warn that approaching rate hikes from the Fed will shrink the ECB's window for action.
In cryptocurrencies, bitcoin was just below $37,700, after a quiet weekend for the digital asset.
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