Title: Dollar steadies as traders reassess rate hike bets

Jan 17, 2022 04:31AM ET

By: AnalysisWatch

The dollar eased slightly on Monday as traders believed monetary tightening by the US Federal Reserve was largely priced in, while the euro retreated from Friday's two-month high.

An unexpected cut in China's key interest rates made the country an outlier, while other major central banks are in talks to raise rates. China's move only briefly weighed on the yuan.

The US dollar index, which had fallen sharply last week until jumping on Friday, was down 0.1% at 95.076 by 0900 GMT. The spot government bond market was closed on Monday for the holiday.

The Fed meets on January 25-26 and is not expected to change interest rates.

ING analysts said the euro rose 0.1 percent against the dollar to $1.1432 as no major economic data is on the calendar this week. Investors will focus on speeches by ECB President Christine Lagarde and other ECB members.

European Central Bank President Christine Lagarde said on Friday that the bank was ready to take all necessary measures to bring inflation down to its 2% target. Inflation rose to 5% last month, the highest level since the 19-country currency union was formed.

Schnabel said in remarks published on Friday that rising interest rates in the eurozone would not bring down rising energy prices.

Elsewhere, momentum for tightening is building. Even the ultra-accommodative Bank of Japan is debating how soon to announce its rate hike plans.

The outlier is China, where a series of economic data confirmed the dampening effect of coronavirus restrictions on consumer spending and prompted Beijing to ease monetary policy.

Wednesday's UK inflation data could help continue sterling's month-long recovery. The pound was unchanged at $1.3679 after rising last week to its highest level since late December.