LONDON. — The dollar held near a 20-year high on Monday as the euro struggled around the $1.05 mark, as investors prepared for a busy week of central bank meetings including a likely Federal Reserve interest rate hike.
Markets in Asia and London were closed for public holidays so trading was quiet.
Investors are expecting the Fed to hike rates by 50 basis points when it meets, and the uncertainty is around how hawkish Fed Chair Jerome Powell will sound in comments following the decision.
Markets are pricing in an aggressive run of rate hikes from the Fed as it tries to tame soaring inflation.
That, together with an expected much slower rate of European Central Bank tightening and worries about the impact of the war in Ukraine on the euro zone economy have sent investors scrambling for dollars and left the euro at levels last seen in 2017.
The dollar index gained 5 percent in April, its best monthly performance since January 2015.
“We expect the USD to stay strong versus the EUR, as a hawkish FOMC [Federal Open Market Committee] stance and geopolitical concerns will support the USD. Short-term investors may look to sell rallies in EURUSD above $1.08,” Thomas Flury, strategist, and Brian Rose, senior U.S. economist at UBS Global Wealth Management wrote in a research note.
They have lowered their euro/dollar forecasts to $1.05 for June from a previous $1.11, $1.06 for September, $1.08 for December and $1.10 for March 2023.
The dollar index was last 103.19, down marginally on the day. The euro traded up 0.1 percent at $1.0555 .
BNP Paribas said last week that big speculative flows and not concerns about a worsening economic outlook explained the euro’s slide to a five-year low below $1.05 this week.
Elsewhere, the dollar gained half a percent on the Chinese yuan in offshore markets, reaching 6.6895 and just below its strongest since late 2020. – Reuters
