The U.S. dollar slipped but remained near a one-month high on Tuesday, as traders weighed the prospect of a Federal Reserve interest-rate hike this week, even as falling oil prices eased some inflation concerns.
The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, was 0.2% lower at 101.35, not far from the 101.80 high touched in late June. The euro EUR= was up 0.2% to $1.1393, while sterling GBP= rose 0.1% to $1.3288. Against the Japanese yen JPY=, the dollar was about flat on the day at 163.77 yen.
The dollar's resilience reflects a sharp repricing of Fed expectations in recent months. Treasury yields have climbed steadily since April as the U.S.-Iran conflict stoked concerns about inflation and a hawkish debut from Fed Chair Kevin Warsh reinforced expectations of higher interest rates.
"Traders are taking steps to preserve liquidity and adding to dollar longs ahead of tomorrow's decision," said Karl Schamotta, chief market strategist at Corpay in Toronto.
"On the face of it, the setup seems bullish for the dollar either way: an outright hike would deliver an unequivocal boost, while a hawkish hold would simply push expectations into September," Schamotta said.
He warned, however, that speculative positioning in favor of the dollar was stretched and that any hint of a more dovish approach from policymakers could trigger a violent unwind.
TLT•
