U.S. Dollar Retreats From 20-Year Peak As Markets Await Fed Rate Hike

The dollar held about 1% below a two-decade peak versus major peers at the start of a week that sees some dozen central bank decisions, headlined by the Federal Reserve on Wednesday and followed by the Bank of Japan and Bank of England the next day, Kevin Buckland reported for Reuters.

Photo Insert: The dollar index, which measures the currency against six counterparts, was 0.09% stronger than Friday at 109.66.

The dollar index, which measures the currency against six counterparts, was 0.09% stronger than Friday at 109.66, consolidating after a volatile couple of weeks that took it as high as 110.79 on Sept. 7 for the first time since mid-2002, only to see it retreat to 107.67 six days later.

Investors have been swung by economic data that at times suggested the Fed may slow the pace of rate hikes to lessen the hit to the economy and risk of recession, only to then show inflation still gathering pace.

Fed policymakers have stressed their decisions will be taken meeting by meeting and be dependent on the most recent data. Currently, markets have priced in at least another 75 basis point increase for this week's Federal Open Market Committee's meeting, and 19% odds of a super-sized full percentage point bump.

This week is also smattered with market holidays that could thin liquidity and result in sharper price moves, with Japan and Britain off on Monday, Australia on Thursday, and Japan again on Friday, among others.

"US dollar can remain elevated as the FOMC continues to hike aggressively and on growing global recession risks," and could hit a new cyclical peak above 110.8, Commonwealth Bank of Australia strategists wrote in a client note.

The poor economic outlook will keep the euro, sterling, and pro-cyclical currencies like the Australian dollar under pressure, they said. The dollar was little changed at 142.905 yen , calming down after its surge to a 24-year high of 144.99 earlier this month.

The BOJ is widely expected to stick with massive stimulus on Thursday, standing out among developed-nation central banks that are all rapidly tightening policy to tame inflation.

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