Dollar Climbs Higher After Previous Day’s Jump

On Tuesday, the US dollar had climbed against the Japanese yen and the euro, while there was a sell-off in US stocks.

Meanwhile, investors were busy positioning themselves for the expected hike in the interest rate next week in the meeting of the US Federal Reserve.

Muted activity

The previous session had seen the US dollar rise rather sharply, but it became more muted after data showed that there had been an unexpected rise in the US services industry activity back in November.

This had given rise to speculation that there might be more interest rate hikes expected from the US central bank than had been expected.

Current expectations indicate that the interest rate would be increased by 50 basis points in the central bank meeting to take place on December 14th.

Market strategists said that there were not many new incentives and even though Monday’s session had seen a lot of price action, the focus is now on the meeting of the Fed in the next week.

The calendar for next week also includes a release of the important consumer price index (CPI) data for the month of November.

Analysts said that the equities market had seen bearish sentiment, which could have given the dollar a boost. They noted that a risk-off environment seemed to have worked out well for the US dollar.

On Tuesday, there was a sharp decline in all of three major stock indexes in the United States, with a decline for the S&P 500 for the fourth session in a row.

The movements

On Tuesday, there was a 0.3% rise in the US dollar index, which measures the currency against a basket of its peers, and its annual increase has been about 10%.

There was a 0.2% drop in the euro against the US dollar, which reached $1.0465, while there was a 0.1% rise in the dollar against the Japanese yen.

On Tuesday, the policymaker of the European Central Bank (ECB) called Constantinos said that interest rates will rise again, but also added that they were fast approaching the neutral level.

The US dollar also climbed against the Canadian dollar by 0.5%, ahead of the rate decision by the Bank of Canada on Wednesday.

The market has priced in an interest rate hike of 25 basis points, which would be less than the previous hike. There is a 73.3% chance of this happening.

However, there is also a slim possibility of a 50 basis point hike by the Bank of Canada.

Other details

There was a 0.1% drop in the Australian dollar, as it came down to $0.6687. The Reserve Bank of Australia (RBA) had announced an interest rate hike earlier for the eighth time in a row.

This temporarily increased the value of the Australian dollar. The RBA had also said that while it was not following a course of hiking the interest rate, but it had to do so because inflation remained high.

Forex strategists said that the energy market would soon start to see the effects of the price cap by Western countries on Russian crude.

This had come into effect on Monday this week, so the impact of the price cap has not become clear as yet.

Russia has already threatened the consequences of a price cap on its oil.