The U.S. dollar index rises in the short-term and the pound depreciates against the U.S. dollar

The U.S. dollar was close to a two-and-a-half-week high against major currencies yesterday, as inflation in the United States accelerated, which strengthened the Fed’s reason to raise interest rates early. The U.S. dollar is close to a week and a half high against the yen after the Japanese ruling party’s strong performance in last weekend’s elections reduced political uncertainty and weakened the yen. The US dollar index was flat at 94.166, hovering around the peak of last Friday at 94.302, which was the highest level since October 13.

The dollar was quoted at 114.175 against the yen, up 0.13% from the close of last week. The Liberal Democratic Party to which Japanese Prime Minister Fumio Kishida belongs, unexpectedly, maintained a majority in the House of Representatives election last Sunday. The decline in Japan’s political uncertainty has made the yen weaker in the Asian market, but the Fed is the bigger factor affecting the dollar against the yen in the future. Monetary policies in the United States and the United Kingdom are the focus of this week, and it is widely expected that the US Federal Open Market Committee will announce cuts to stimulus measures on Tuesday. Fed funds rate futures, which track short-term interest rate expectations, show that there is a 90% probability that the Fed will raise interest rates by 25 basis points by June 2022, and it is expected to raise interest rates again by December.

The Bank of Australia will announce its policy decision on Tuesday, and the market questioned the central bank’s statement that it will not raise interest rates before 2024. The Australian dollar fell 0.14% to US$0.75509 against the US dollar, continuing to retreat from the nearly four-month high of US$0.75555 reached last week.

The Bank of England will also announce its policy decision on Thursday, and the market is weighing whether it will raise interest rates at this meeting. The pound fell slightly to 1.36775 against the US dollar, having earlier dropped to 1.3663, the first time since mid-October. The euro was flat at $1.15575 against the U.S. dollar, close to 1.1535, the lowest point since October 13 reached last Friday.

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