Dollar dips with US Treasury yields; investors looking to Jan 26 Fed meeting

New York

THE dollar declined on Friday (Jan 21), along with US Treasury yields, while investors looked ahead to the Jan 26 Federal Reserve meeting for more clarity on the outlook for rate hikes.

Expectations that the Fed will tighten monetary policy at a faster pace than previously anticipated had driven a rise in yields and the dollar earlier in the week, and the US dollar index was set for biggest weekly percentage gain since mid-December. US Treasury yields fell as stock market declines reflected poor risk appetite, while concerns about potential conflict in Ukraine drove demand for the safe haven debt.

Markets are pricing in as many as 4 rate hikes this year, starting from March and expect the Fed to start trimming its US$8 trillion-plus balance sheet within months. The Jan 26 Fed meeting could shed some light on how fast it will tighten.

"Everything is going to be somewhat calm" until the Fed releases its statement on Wednesday after the 2-day meeting, said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.

"It makes sense the dollar is somewhat muted today given the lack of real impetus from the data front."

The dollar index, which tracks the greenback against major peers, was down 0.1 per cent on the day at 95.650 but up 0.5 per cent for the week.

Against the yen, the dollar was last down 0.4 per cent at 113.680.

For the week, the dollar was down about 0.5 per cent against the yen. The euro was last up 0.3 per cent against the dollar at US$1.1341, while it was down about 0.6 per cent for the week.

Retail sales in Britain added to recent weaker economic data. The pound was down 0.3 per cent against the dollar at US$1.3553. REUTERS