The U.S. Federal Reserve should raise rates for the first time after the epidemic at its meeting, which finishes Wednesday. Traders are looking for indications regarding the pace of future rate hikes.
The CME’s Fed Watch tool states that markets expect a 25 basis point rise at this meeting. Yet, pricing has increased to indicate a 70% chance of a more significant 50 basis point hike at its following meeting in May because of inflation concerns.
The dollar index gauges the dollar versus six prominent peers. It was at 98.881, down 0.23% on the day mainly because of losses versus the euro; however, it was in sight of the 99.415 level a week ago highest level after May 2020.
The yen dropped as low as 118.44 per dollar on Tuesday; a new five-year low, as its current slide displayed no signs of quitting.
The contrast between rising benchmark rates in the United States and low rates in Japan is becoming ever more evident as the Fed begins to tighten, especially with the Fed and the Bank of Japan meeting this week.
Analysts at Bank of America (NYSE: BAC) increased their forecast for dollar-yen to 123 by the third quarter.
Discussions Might Boost Euro
The comeback of risk sentiment to markets, somewhat on the back of hints of a negotiated end to the war in Ukraine, has also taken away some of the approval for the safe-haven Japanese currency.
Russian and Ukrainian delegations had the fourth round of talks on Monday, but no new improvement was announced. Discussions should resume on Tuesday, offering growth to the euro, badly injured by the expected economic damage induced by the conflict.
The European common currency was higher 0.36% to $1.0979, with analysts also pointing to declining oil prices as a factor given Europe’s current dependence on Russian oil and gas.
