Dollar Retreats as Traders Expect First US Interest Rate Hike

The dollar has pulled back from near multi-week highs as oil prices stalled and ahead of a Federal Reserve decision that traders expect will bring the first of several possible U.S. interest rate hikes.

Financial markets are betting heavily that Fed policymakers will lift their benchmark rate by a quarter of a percentage point, to a 3.75%-4.00% range, and signal further tightening ahead.

Kirstine Kundby-Nielsen, senior FX analyst at Danske Bank, said 'Even though a hike is close to being fully priced, we could see some dollar strength (if they raise interest rates)'. At $1.1554 the euro was not far from Monday’s one-month low of $1.1523.

The dollar index, which measures the currency against major peers, was down less than 0.1% at 99.59. Currency markets have not moved that much while global bond yields have climbed in concert over recent weeks, because sovereign bonds have moved in tandem and not shifted relative differences between countries’ yields very far.