Dollar set for fourth monthly drop as Fed meeting looms

The dollar was eyeing a fourth monthly loss on Tuesday as investors reckon a peak in U.S. interest rates could swing into view as soon as this week’s Federal Reserve meeting, Reuters reported.

Currency trade was subdued in the lead up to Wednesday’s Fed rate decision, and ahead of Bank of England and European Central Bank rate decisions on Thursday, though cautiousness across financial markets gave the greenback a bit of support.

The euro wandered as far as $1.0913 on Monday after data showed Spanish inflation running surprisingly hot in January, though the broader mood has reeled it back to $1.0845. The common currency is up 1.3% this month and is loitering near a nine-month peak.

The U.S. dollar index is down 1.3% for January so far and held at 102.28 on Tuesday. The Japanese yen fell 0.4% overnight but was steady at 130.26 in Asia and is set for its third monthly gain as markets anticipate shifts in monetary policy. Sterling and the Australian, New Zealand and Canadian dollars also made overnight losses but are set for monthly gains.

The Aussie fell 0.7% overnight, but at $0.7036 it is up about 3.2% for the month so far. The kiwi, last at $0.6474, is up more than 1.5% for January.

 “Technically I think they’re looking a little bit tired,” said Tony Sycamore, an analyst at brokerage IG Markets in Sydney, referring to currencies rallying against the dollar, with investor caution and month-end dollar buying also contributing to their loss of momentum in the Asia session.

Interest-rate futures indicate market expectations for a 25 basis point (bp) hike from the Federal Reserve to take the Fed funds rate window to 4.5%-4.75%. Pricing suggests two more 25 bp hikes are expected, before cuts later in the year.