Cryptocurrencies pause after weekend battering, other currencies wait for Fed
By Alun John
HONG KONG, Jan 24 (Reuters) - The dollar traded steady on Monday ahead of the U.S. Federal Reserve's January policy meeting later this week, while bitcoin lay bruised near a six-month low hit over the weekend, hurt by a sell-off in technology stocks.
"The Fed has got markets by the leash. And this week, it will once more tug and yank," said Frederic Neumann, HSBC's co-head of Asian economics research, in a morning note.
Attempts to predict when and how quickly central banks will raise interest rates and conclude stimulus programmes launched when COVID-19 hit are a major factor driving currency markets at present.
"What will prompt investors to scurry about will be the guidance Chair Powell might give at his press conference about quantitative tightening later in 2022," Neumann said, adding that he was not expecting a policy change.
The Fed's rate-setting Federal Open Market Committee kicks off its two-day meeting on Tuesday with some analysts starting to speculate that it is possible, though unlikely, that it will raise interest rates for the first time since the pandemic began.
"We consider the higher risk is the FOMC’s statement portrays an urgency to act soon, likely in March, in the face of very high inflation. The urgency could culminate in a decision to abruptly stop quantitative easing by mid-February," said analysts at Commonwealth Bank of Australia in a note.
"A bullish statement and/or a faster end to the QE programme could even encourage markets to price a risk of a 50bp rate hike in March," they added, saying they thought this would lead to a knee-jerk reaction higher in the dollar.
The dollar index, which measures the greenback against six major peers was steady at 95.682 on Monday morning.
Also on traders' agenda this week is the Bank of Canada's January meeting, wrapping up just before the Fed, where a rate hike is a possibility, and Australian inflation data due Tuesday, which will guide the Reserve Bank of Australia's stance at its meeting next month.
On Monday morning the Aussie dollar was at $0.7180, the lower end of its recent range. The risk-friendly currency sold off late last week as traders dumped assets like equities, as well as even riskier assets like cryptocurrencies.
Bitcoin BTC=BTSP was at $36,026, having fallen 10% on Friday and dropping as low as $34,000 on Saturday, its lowest level since July 2021.
The world's largest cryptocurrency has nearly halved in value since its record peak of $69,000 hit November.
The sell-off hurt most digital assets, and ether ETH=BTSP , the world's second-largest cryptocurrency was at $2,516, also having hit its lowest level since July on Saturday, which was $2,300.
Traders say that as institutional investors increase their exposure to cryptocurrencies, their moves are more closely correlated with other risk assets.
The Nasdaq Composite .IXIC lost 7.55% last week, its worst week since March 2020.
Back in traditional currency markets, sterling GBP=D3 was near a two-week low at $1.3551, and the euro was at $1.1333.
The yen was at the stronger end of its recent range, with one dollar at 113.7 yen not far from the 113.47 touched 10 days earlier. A fall below that level would be a five-week low for the dollar.
Currency bid prices at 0032 GMT Description
U.S. Close Pct Change
+113.8250 +0.0000 Euro/Yen
+0.9123 Sterling/Dollar GBP=D3
+1.3547 Dollar/Canadian CAD=D3
All spots FX= Tokyo spots AFX= Europe spots EFX= Volatilities FXVOL= Tokyo Forex market info from BOJ TKYFX
World FX rates Link
Reporting by Alun John
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.