Dollar seesaws ahead of busy central bank week

The U.S. dollar index, which measures the greenback against a basket of currencies, rose 0.03% to 101.92, after having hit an eight-month low of 101.50 last week.

It was on track for a fourth consecutive monthly loss of more than 1.5%, pressured by expectations that the Fed was nearing the end of its rate-hike cycle and that interest rates would not have to rise as high as previously feared.

Sterling was up 0.04% at $1.2405, while the euro rose 0.06% to $1.0874.

Movement was subdued ahead of policy meetings from the Fed, the European Central Bank (ECB) and the Bank of England (BoE) later this week.

“We will range trade a little bit as the market tries to assess how the central banks behave… I think, for all three it’s going to be more about what they say than what they do,” said Rodrigo Catril, a currency strategist at National Australia Bank (NAB).

The Fed is widely expected to deliver a 25 basis point rate hike – a down-shift from its 50bp and 75bp increases seen last year – while market watchers say the BoE and ECB are likely to raise rates by 50bp each.

The euro, which is headed for a nearly 1.5% monthly gain, has drawn support from continued hawkish rhetoric by ECB policymakers and ebbing fears of a deep recession in the euro zone.

Elsewhere, the New Zealand dollar slipped 0.05% to $0.6491, while the yen jumped close to 0.2% to 129.62 per dollar.

A panel of academics and business executives on Monday urged the Bank of Japan to make its 2% inflation target a long-term goal, instead of one that must be met as soon as possible, in light of the rising cost of prolonged monetary easing.

The Australian dollar fell 0.3% to $0.7088 but was on track for a monthly gain of nearly 4%, after the shock that Australia’s inflation rate shot to a 33-year high last quarter caused traders to ramp up bets that the Reserve Bank of Australia will have to tighten interest rates further.

With China returning from its Lunar New Year holiday, focus will be on the upcoming release of its purchasing managers’ index (PMI) data on Tuesday.

“The market will be looking … hopefully not to get disappointed,” said NAB’s Catril.

“So far, the data coming from China, or the vibes coming from China, do play to the view that a good reopening in terms of activity is likely to unfold.”

Lunar New Year holiday trips inside China surged 74% from last year after authorities scrapped COVID-19 travel curbs, state media reported on Saturday.

The onshore yuan jumped against the dollar on Monday, rising roughly 0.5% to 6.7530, as investors cheered signs of economic recovery indicated by robust holiday spending and tourism data.

(Reporting by Rae Wee; Editing by Bradley Perrett and Christopher Cushing)