The dollar rises with the dominance of the Fed meeting and the risks of growth

Written by Tom Westbrook

SINGAPORE (Reuters) – The dollar was in full swing on Monday as traders braced for a sharp rise in US interest rates this week and looked for safety as data pointed to weakness in the global economy.

The dollar rose slightly against most of the major currencies early in the Asian session, trading at $1.0195 on the euro and settling its losses on Friday to buy 136.57 Japanese yen.

The US Federal Reserve is wrapping up its two-day meeting on Wednesday and markets are pricing in a 75 basis point rate hike, with a 9% chance of a 100 basis point rate hike.

“The market reaction will be upended by how hawkish President (Jerome) Powell looks with his determination to bring down inflation in the face of slowing growth,” said Rodrigo Cattrell, currency analyst at National Australia Bank.

US growth data is also due on Thursday, although markets were already shaken by a slew of soft business indicators in Europe, which wiped out a rally in risky assets on Friday.

An energy crisis also hangs over the euro, while the trade-sensitive Australian and New Zealand dollars, which reached their highest levels in a month on Friday, fell.

The Australian dollar fell about 0.5% to $0.6892, and the New Zealand dollar fell by the same margin to $0.6223. [AUD/]

Australian consumer price data is due on Wednesday and the hot number may provide support by ramping up bets on rate hikes, although analysts cautioned that the background was mostly negative.

“The Australian dollar is going to be primarily a function of the global economic outlook,” said Joe Caporso, head of international economics at the Commonwealth Bank of Australia.

“The bleak outlook indicates that the Australian dollar has more downside than upside risks and could test $0.6800 this week.”

Sterling also fell on Monday, even as markets believed there was a 60% chance that the Bank of England would raise interest rates by 50 basis points next week. The last drop was 0.3% to $1.1970.

Bitcoin hovered at $22,278. The dollar rose 0.4 percent to buy 0.9641 Swiss francs. The US dollar index settled at 106,840, just below a two-decade high in mid-July at 109,290.

(Reporting by Tom Westbrook; Editing by Shree Navaratnam)