Dollar Firms as Markets Anticipate Hawkish Central Banks

The US dollar firmed up on Monday ahead of key decisions from major central banks. The European Central Bank raised rates last week and warned of further hikes, which has investors bracing for a hawkish week from the Federal Reserve and Bank of Japan. The Fed is set to make its policy decision on Wednesday, while the BOJ will decide on Friday.

The euro was 0.28% softer at $1.1565, while sterling last bought $1.3503. However, rising yields and shifting rate expectations have so far failed to push the dollar significantly higher. The U.S. Treasury yields remained near multi-year highs, with the 2-year yield inching away from a two-year high to 4.61%, after rising 26 basis points last week.

The yen was 0.3% weaker at 154.03 per US dollar, though it remained not far from the seven-month high of 152.89 that it touched last week. Analysts at MUFG noted that a 25 bps hike is already almost fully priced for the BOJ, and that they will have to signal that they are planning to stick to the faster pace of hikes for the yen to strengthen further.

Brent crude futures rose 2% to $106.7 per barrel after new Houthi strikes on Saudi Arabia and Iranian attacks on ships in the Gulf compounded supply concerns following the closure of a key Saudi oil pipeline. This has dampened risk sentiment, with markets heavily conditioned for a hawkish week.