The U.S. dollar strengthened on Monday, ahead of the Federal Open Market Committee’s (FOMC) rate-setting meeting from Tuesday to Wednesday.
The sterling was at $1.1537, falling 0.67 percent, the euro reached $0.9932, losing 0.36 percent and the greenback was at 148.6 Japanese yen, growing 0.82 percent. The dollar also strengthened against the Chinese onshore yuan, reaching 7.32 per dollar or raising by 0.74 percent. The Australian dollar also slid 0.35 percent to $0.6389.
In October, the dollar was expected to lose its monthly strength as analysts predicted that the Fed would implement a “less aggressive” rate increase at the FOMC meeting. The rate hike depended on September inflation data, which showed that inflation within the U.S. remained “uncomfortably” high.
Bureau of Economic Analysis revealed that the Personal Consumption Expenditures Index rose 0.3 percent from August to September, although its yearly rate stayed at 6.2 percent. Core PCE also showed a year-to-year climb of 5.1 percent in September.
Despite that, the Bureau of Labor Statistics revealed a decline in the quarterly spending for labor costs from July to September, indicating that the wage growth had slowed. Analysts said that the Fed would need to pay attention to the Employment Cost Index as growing wages could “fuel” inflation.
Lombard Odier economist Samy Chaar said, "Currency markets are in wait-and-see mode ahead of the FOMC meeting on Wednesday after we saw a bit more of a balanced tone from some other central banks.”
Chaar added that it was unlikely for the Fed to make a “dovish” pivot so soon, but he said that the central bank might raise the rate in a “more balanced” way. In October, analysts predicted a fourth consecutive 75 basis points rate hike in the November meeting. A recent market survey, however, suggested a 50 percent chance that the Fed would opt for a 50 basis points hike.
EY Parthenon economist said the September inflation data indicated that the central bank still had “more work to do to cool demand and reduce inflation,” suggesting a 75 basis points hike. Moody’s Analytics economists insisted it would be the last three-quarters of a percentage hike as the market had shown signs of a slowdown.
Other countries’ monetary policies
The Canadian and Australian central banks decided to implement lower-than-expected rate hikes at 50 basis points last month. On the other hand, the European Central Bank had a 75 basis points hike last week. New preliminary data showed that inflation in the European region reached 10.7 percent in October, a new record.
Like the Fed, the Bank of England will conduct a rate-setting meeting this week. Its basal rate is currently 2.25 percent. Investors have predicted a 75 basis points hike by the central bank, which will be its highest rate since the 2008 financial crisis.
Two major Asian countries, Japan and China, opted to maintain loose monetary policies as they dealt with domestic issues. A drop in yen against other major currencies prompted the Japanese government to intervene with the forex market, reportedly spending 6.3499 trillion yen ($42.8 billion) in October.
Meanwhile, China is facing issues with its housing market and declining global demand for its products. The yuan’s significant drop on Monday is expected to continue due to an “apparent weakness” in China’s economy.