The US dollar showed a strengthening on Monday, returning the excellent performance that had previously started to fade at the beginning of the month. A good start to the week amid data releases and central bank rate setting, including by the Bank of England and most importantly the Federal Reserve.
The euro lost 0.36% to $0.9932, sterling lost 0.67% to trade at $1.1537 and the US dollar strengthened 0.82% against the Japanese yen to trade at 148.6.
Waima so the US dollar is expected to face a monthly decline in October following the expectations of the U.S. Federal Reserve. could signal a less aggressive program of future rate hikes at its policy meeting starting on Tuesday.
However, late last week this narrative began to fade. According to Samy Chaar, chief economist at Lombard Odier, "the currency market is in a phase of waiting and observing what decision the FOMC will take on Wednesday".
"The question is will the Fed continue aggressive measures or will the Fed be more balanced in its actions?"
The central banks of Australia and Canada both raised rates less than expected at their October meetings, and markets read a dovish tone in the European Central Bank's 75 basis point hike last week.
The Fed is expected to deliver another rate hike of 75 basis points when the meeting ends on Wednesday, which would be the fourth hike in a row. The market is split on a 50% chance of a possible 50 basis point increase at the December meeting.
The euro barely reacted after data was released on Monday that showed euro zone inflation was more critical than expected at 10.7%, a new record high.
Also released on Monday was data showing Japan spent 6.3499 trillion yen ($42.8 billion) in currency interventions this month to support the yen. Elsewhere, China's yuan slipped after data released on Monday showed Chinese factory activity unexpectedly fell in October, hit by weak global demand and tight domestic COVID-19 restrictions.
Iris Pang, chief economist for Greater China at ING, is of the view that the yuan will continue to weaken in the short term given the significant economic weakness. In addition to more Covid-19 cases and the expected economic shutdown, the yuan will be more affected.
Also on the agenda this week is the Bank of England which will meet on Thursday, after a period of uncertainty in British political and fiscal policy. An increase in interest rates by 75 basis points.
The Reserve Bank of Australia (RBA) is expected to raise interest rates by a more modest 25 basis points at Tuesday's meeting, even as inflation hit a 32-year high last quarter. The Aussie dollar was down 0.355 to trade at $0.6389.
US dollar index continues to strengthen after former president Luiz Inacio Lula da Silva narrowly defeated President Jair Bolsonaro in a runoff election.
