Dollar holds one-month high as markets weigh Fed rate hike odds

TOKYO: The US dollar held near a one-month high on Tuesday as investors weighed the possibility of another Federal Reserve interest rate hike this week, despite easing oil prices that have reduced some inflation concerns.

The dollar index, which measures the greenback against a basket of major currencies, was little changed at 101.45. The euro rose 0.09% to $1.1377, while the Japanese yen traded at 163.73 per dollar. Sterling gained 0.09% to $1.3299.

Market expectations for a 25-basis-point increase at the conclusion of the Federal Reserve's policy meeting on Wednesday have strengthened. 

According to CME FedWatch, traders are pricing in a 37.9% chance of a rate hike this week, up from 16% a week earlier. Markets also see an 81% probability of a rate increase at the Fed's September meeting.

The prospect of tighter US monetary policy has continued to support the dollar, even after a pause in US military strikes on Iran pushed oil prices lower and eased immediate concerns over inflation.

Investors are now awaiting the release of second-quarter US gross domestic product (GDP) data and the Fed's preferred inflation measure, core Personal Consumption Expenditures (PCE), later this week for further guidance on the outlook for US interest rates.

The Australian dollar slipped 0.11% to $0.6981 after Reserve Bank of Australia Governor Michele Bullock said underlying inflation remained elevated and that further weakness in domestic demand might be needed to bring price pressures under control. The New Zealand dollar traded at $0.5772.

Attention is also turning to this week's meetings of the Bank of England and the Bank of Japan, both of which are widely expected to leave interest rates unchanged while maintaining a cautious stance on inflation.

With the yen hovering near a 40-year low against the dollar, investors will closely watch the Bank of Japan's policy guidance for signals on future rate increases. Japanese Finance Minister Satsuki Katayama reiterated that Tokyo remains prepared to respond to excessive currency movements if necessary but declined to comment on the possibility of joint currency intervention with the United States.

In cryptocurrency markets, Bitcoin fell 2.56% to $63,255.62, while Ether dropped 3.34% to $1,880.38, marking its biggest daily percentage decline in a month.