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Dollar Up Over Anticipated Fed Interest Rate Hike

The dollar was up on Tuesday morning in Asia as expectations of interest rate hikes from the U.S. Federal Reserve and concerns over the omicron COVID-19 variant rise.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged up 0.12% to $96.390 by 12:05 AM ET (5:05 AM GMT).

The USD/JPY pair inched up 0.02% to 113.59.

The AUD/USD pair went down 0.34% to 0.7104 and the NZD/USD pair edged up 0.14% to 0.6744.

The USD/CNY pair inched up 0.04% to 6.3653 and the GBP/USD pair edged down 0.11% to 1.3202.

The Fed, the European Central Bank, the Bank of England, and the Bank of Japan, are among around 20 central banks handing down their respective policy decisions this week.

The Fed will start its two-day monetary policy meeting later in the day and hand down the policy decision on Wednesday. The central bank is expected to quicken its asset tapering program and investors will look for clues about the timing of interest rate hikes in 2022.

Investors are now anticipating an interest rate hike by June in 2022, with another hike as early as November of that year.

“That leaves a very high bar for the Fed to deliver a ‘hawkish surprise’,” Westpac analysts said in a note.

“But even if the Fed merely matches elevated expectations, they are still streets ahead of the ECB, who is looking for ways to maintain accommodation” after its Pandemic Emergency Purchase Program (PEPP) is due to end in March 2022, the note added.

The European Central Bank and the Bank of England will hand down their policy decisions on Thursday, and the Bank of Japan will hand its down a day later.

The European Central Bank is expected to confirm its exit from EUR1.85 trillion ($2.08 trillion) pandemic emergency stimulus scheme in March 2022 during the meeting.

Meanwhile, with the U.K. reporting its first death linked to an omicron case according to Prime Minister Boris Johnson, the probability of an interest rate hike from the Bank of England is diminishing. In Asia Pacific, China reported its first imported case of omicron infection.

In cryptocurrencies, bitcoin rose around 1% to climb up from Monday’s low of $45,750.

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