Title: Dollar pauses below two-decade peak as Fed path pondered; Aussie jumps

Jul 19, 2022 01:45AM ET

By: AnalysisWatch

On Tuesday, the U.S. dollar held just above a one-week low as markets trimmed the odds of the Federal Reserve raising interest rates by a full percentage point this month.

The Australian dollar edged back towards Monday's one-week high amid hawkish comments from the country's Reserve Bank.

Traders of futures contracts tied to the Fed's short-term federal funds rate, who had been leaning toward a full percentage point rate hike for the July 26-27 meeting, changed their bets firmly in favor of a 0.75 percentage point increase, with the odds last around 81 percent.

The dollar index, which values the greenback against six peers, was unchanged at 107.46. That's down from Monday's low of 106.88, but also well back from last week's high of 109.29, which hasn't been seen since September 2002.

The euro, which is the currency with the biggest weighting in the dollar index, fell 0.13 percent to $1.01305, but that came after it gained about 0.6 percent overnight, a second day of strong gains.

On Thursday, the common currency slid to US $0.9952 for the first time since December 2002, pressured by uncertainty over a deepening energy supply crisis in the euro zone.

Despite the uncertainty, the European Central Bank is poised to raise interest rates on Thursday for the first time in more than a decade.

It announced a 25 basis point increase, but rising inflation has led some traders to bet on a half-point hike.

The dollar was unchanged at 138.055 yen, not far from Thursday's high of 139.38 yen, a level not seen since September 1998.

The Australian dollar rose 0.44 percent to $0.6843 and at one point touched $0.68475, narrowing the gap with the previous session's high of $0.6853, the highest since July 11.

Last Thursday, it hit a low of $0.66825, the weakest in more than two years.