Dollar Holds Firm Ahead of Expected Rate Hike
The US dollar is holding firm ahead of the Federal Reserve's rate decision, with markets largely expecting a 25-basis-point hike that could keep US yields and the currency supported.
When traders think US interest rates will stay higher than those elsewhere, the dollar often gets a lift, since investors can earn more holding dollar assets.
A busy US calendar today includes retail sales and other reports that can shift views on how resilient the economy is heading into the Fed's announcement and Chair Kevin Warsh's press conference.
Futures markets are pricing a 92.7% chance of a quarter-point move to a 3.75%-4.00% policy rate, so the decision itself is close to 'fully priced in'. The bigger market test is the messaging: if the Fed signals rates may stay restrictive for longer, longer-term Treasury yields can rise, supporting the dollar even if the hike is as expected.
Mortgage rates may hinge more on Kevin Warsh's message than the quarter-point hike to 3.75%-4.00%, as fixed mortgage rates are tied mostly to longer-term borrowing costs, not just the Fed's overnight rate.