Dollar rises ahead of Fed’s rate hike expectation, Wall Street set to follow EU stocks lower
The dollar rose before the start on Tuesday of a Federal Reserve policy meeting expected to raise U.S. interest rates, while European shares fell as investors faced a week packed with political and market risks.
Wall Street looked set to follow Europe lower, index futures showed, having traded in a very tight range on Monday with eyes on the Fed.
The U.S. central bank said in a statement its two-day meeting would go ahead as planned, dispelling doubts policymakers would brave a snowstorm hitting Washington.
While the Fed meeting is the focus for markets this week, investors also have to assess the impact of central bank meetings in Britain and Japan, a gathering of G20 finance chiefs, U.S. President Donald Trump’s first budget and a tense election in the Netherlands.
“With a busy calendar of geopolitical events coming up, in particular across the euro zone, investors could be seen to be taking some risk off the table with several potentially volatile events lined up,” Charles Hanover Investments partner Dafydd Davies said.
A Fed rate rise on Wednesday is seen as all but certain and investors will focus on new economic forecasts and any clues as to how many rate hikes can be expected this year.
The dollar index, which measures the greenback against six other major currencies, rose 0.3 percent.
The euro fell 0.2 percent to $1.0629 while the yen was flat at 114.90.
Sterling fell 0.6 percent to $1.2136, having dropped as far as $1.2107, its weakest since Jan. 17, reversing gains chalked up on Monday when Scotland’s leader demanded a new referendum on independence but not before autumn 2018.
“The big question is ‘does the Fed become even more hawkish and point towards the possibility of more than three rate hikes?’,” said Constantin Bolz, head of currency strategy at UBS Wealth Management in Zurich.
“That would be dollar-positive. But if they do it like they usually do — deliver a hike today but keep the promise to hike very gradually — then the dollar could rather give back a little bit.”
