Title: Dollar Flat Ahead of PMIs, Fed Meeting; Ruble Weaker Again on War Fears

Jan 24, 2022 03:42AM ET

By: AnalysisWatch

The dollar edged higher in early trade on Monday, with risk appetite still held back by fears of rising interest rates and war in Eastern Europe.

At 3 AM ET (0800 GMT), the dollar index, which tracks the greenback against a basket of developed countries, was 0.1% higher at 95.773, still well within its recent range and struggling to make new highs.

The paradox is nowhere more evident than in the Russian rouble, which hit another nine-month low against the dollar in early trading in Europe on fears that last week's diplomatic breakthrough would not be enough to prevent a second Russian invasion of Ukraine in eight years.

The State Department has ordered the families of US diplomats in Ukraine to leave the country, indicating that the US still considers the risk of conflict to be high. The UK followed suit on Monday.

Short-term interest rate futures currently suggest that the Fed will raise the target range for policy rates by more than 25 basis points by the end of the quarter, implying a low risk of a rate hike this week or a 50 basis point hike in March. However, the overwhelming consensus remains in favor of an initial 25 basis point hike in March, which means that the most important developments at the Fed will be its guidance, particularly with regard to when and how quickly it will start selling its accumulated bond portfolio back to the market.

US Treasury yields have risen in the first three weeks of the year, partly due to expectations of higher net supply from Fed bond sales later in the year. After reaching a high of over 1.80% last week, the yield on 10-year government bonds is now back at 1.76.