By Peter Nurse

Investing.com – The U.S. dollar edged lower in early European trading on Tuesday ahead of the start of the Federal Reserve’s latest policy-setting meeting, while the Australian dollar soared after the Reserve Bank raised interest rates and announced others to come.

As of 02:55 ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading down 0.1% at 103.623, holding below the 103.93 level. observed at the end of last week, the highest since December 2002.

The Fed will begin its two-day consultation later this session, before issuing its political decision Wednesday. It is widely expected to raise rates by 50 basis points, the biggest hike since 2000, while announcing plans to reduce its balance sheet by $9 trillion.

Some investors are even waiting for the possibility of a 75 basis point hike or a faster pace of balance sheet reduction than currently expected.

“The Fed tightening cycle is largely priced in, but we certainly don’t see the divergence between market expectations and central bank communication that we see in the case of other major central banks,” analysts said. ing in a note.

“With the Federal Reserve having largely endorsed hawkish market pricing, any risk from a material accommodative revaluation seems quite remote for the dollar.”

However, the Fed is not the only major central bank meeting this week. the Reserve Bank of Australia got the ball rolling earlier on Tuesday, raising its cash rate by 25 basis points to 0.35%, in an attempt to .

“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time,” Governor Philip Lowe said in a post-meeting statement. “This will require a further rise in interest rates over the coming period.”

AUD/USD surged as a result, rising 1% to 0.7117, while GBP/USD rose 0.2% to 1.2510, with the bank of england is expected to make its final policy decision on Thursday.

The BOE is expected to raise interest rates to their highest level in 13 years, even as policymakers must balance efforts to contain inflation which has reached a 30-year high against the risk that rate hikes will slow. the budding recovery.

EUR/USD edged higher to 1.0507, slightly above last week’s 5-year lows as the single currency suffered from concerns over the impact of the war in Ukraine on inflation and growth In the region.

The European Union is expected to step up its plans to toughen sanctions against Russia this week, potentially agreeing to an oil embargo from Moscow, which would add to energy security concerns in the region.

Additionally, USD/JPY edged lower to 130.10, holding just below 20-year highs seen at the end of last week, while USD/CNY remained broadly unchanged at 6, 6083, just below the 6.6940 touchdown on Friday, which was the highest since November. 2020.

Official Chinese Purchasing Managers Indexes showed the manufacturing and services sectors contracted sharply in April as many parts of the country suffered varying degrees of Covid restrictions.

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