The dollar was on a strong footing on Monday as traders brace for a sharp hike in US interest rates this week and seek safety as data points to a weakening global economy.
The greenback edged higher against most major currencies at the start of the Asian session, trading at $1.0195 against the euro and stabilizing Friday’s losses to buy 136.57 Japanese yen.
The US Federal Reserve wraps up a two-day meeting on Wednesday and markets are pricing in a 75 basis point (bp) rate hike, with about a 9% chance of a 100bp hike.
“The market reaction will depend on how belligerent Chairman (Jerome) Powell looks with his determination to reduce inflation in the face of slowing growth,” said National Australia Bank currency strategist Rodrigo Catril.
U.S. growth data is also due out on Thursday, though markets have already been rocked by a series of weak trade indicators in Europe, which stifled a rally in risk assets on Friday.
An energy crisis also looms over the euro, while the trade-sensitive Australian and New Zealand dollars, which hit one-month highs on Friday, retreated.
The Aussie edged down about 0.5% to $0.6892 and the Kiwi fell by the same margin to $0.6223.
Australian consumer price data is due on Wednesday and a hot number could provide support in increasing bets on rate hikes, although analysts warned the backdrop was mostly negative.
“The Australian dollar will be primarily a function of the global economic outlook,” said Commonwealth Bank of Australia’s head of international economics, Joe Capurso.
“The clouded outlook suggests the Aussie has more risk on the downside than upside and may test $0.6800 this week.”
The pound also fell on Monday, even as markets are pricing in a 60% chance that the Bank of England will hike rates by 50 basis points next week. It was last down 0.3% at $1.1970.
Bitcoin was hovering at $22.278. The dollar rose 0.4% to buy 0.9641 Swiss franc. The US dollar index came in at 106.840, just below a two-decade high hit in mid-July at 109.290.