The dollar began the week firmly on Monday with investors in a cautious mood ahead of several central bank meetings, headlined by the Federal Reserve, while looming catastrophe at indebted developer China Evergrande added to markets’ fragility.
In thin trade, owing to holidays in Japan and China, the euro nursed losses from its weakest week in a month, slipping slightly to touch a four-week low of $1.1721.
The U.S. dollar index rose very slightly to a month-high 93.263. The yen held at 110.01 per dollar.
The week brings central banks in Japan, the UK, Switzerland, Sweden, Norway, Indonesia, the Philippines, Taiwan, Brazil, South Africa, Turkey and and Hungary as well as elections in Canada and Germany -- though traders are mostly focused on the Fed.
Creeping U.S. yields, however, which at the 10-year tenor rose for a fourth straight week last week point to risks of a hawkish surprise or a shift in projections to show hikes as soon a 2022, both of which could support the dollar.
It would only take two Fed members to change their minds for the “dot plot” of median projections to reflect hikes next year, said Marshall Gittler of brokerage BDSwiss.
Among the other major central banks the Bank of England is expected to leave policy settings unchanged, but traders see potential for gains in the currency if the bank adopts a hawkish tone or more members being calling for asset purchase tapering.
There is no expectation of policy shifts at the resolutely dovish Bank of Japan on Wednesday, but a day later Norway’s Norges Bank is expected to becomes the first G10 central bank to lift rates.
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