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(C) Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar inched higher on Monday, trading in a narrow range as investors remained cautious ahead of several key policy decisions due this week, with the Federal Reserve expected to keep rates on hold for the first time since January 2022.

Monetary policy meetings at the Fed, the European Central Bank (ECB) and the Bank of Japan (BOJ) will set the tone for the week as markets seek clues from policymakers on the future path of interest rates.

U.S. May inflation data is also out on Tuesday as the Fed kicks off its two-day meeting.

“Though it’s more likely than not that the Fed will ‘skip’ a hike this month, it seems as if no one wants to be caught on the wrong side of the market should they choose to hike this month, keeping volatility low across most majors,” said Helen Given, FX trader, at Monex USA in Washington.

She said everyone seemed to be “holding their breath” and waiting for Federal Reserve Chair Jerome Powell.

“A hike Wednesday would likely be very dollar-positive as it would go against current market expectations,” Given said.

Money markets are leaning toward a pause from the Fed, according to Refinitiv’s FedWatch, but a majority expect a hike in the July meeting.

Conversely, a clear majority of economists polled by Reuters expect the ECB to hike its key rate by 25 basis points this week and again in July, before pausing for the rest of the year as inflation remains sticky.

The U.S. dollar index clocked a loss of nearly 0.5% last week, its worst weekly drop since mid-April, and was last up 0.1% at 103.64.

The euro was flat at $1.0753, having risen 0.4% last week, its first weekly gain in roughly a month.

Elsewhere, the Japanese yen slipped 0.2% to 139.61 per U.S. dollar, before a policy meeting by the BOJ, which is expected to maintain its ultra-loose monetary policy and forecast a moderate economic recovery, as robust corporate and household spending cushion the blow from slowing overseas demand, sources told Reuters.

Elsewhere, the Reserve Bank of New Zealand last month signaled it was done tightening after raising rates to the highest in more than 14 years at 5.5%, ending its most aggressive hiking cycle since 1999. That sent the New Zealand dollar tumbling 2.7% in May.

The kiwi was last down 0.2% on the day at US$0.6118, sterling fell 0.6% against the dollar to $1.2503, while the Aussie edged up to US$0.6750 with a holiday in most of Australia making for thinned trade.

China’s offshore yuan extended losses to trade at its lowest level against the greenback since November as recent soft data has raised expectations for monetary easing from the People’s Bank of China this year. The dollar was last up 0.2% at 7.158.

(C) Reuters.

Investing.com — A week after the Saudi bid to surprise the oil market, traders are indeed surprised over how far it is going in opposite to Riyadh’s wishes.

Crude prices tumbled as much as 4% Monday in a takedown that sent U.S. benchmark West Texas Intermediate, or WTI, nearer to its $65 per barrel support, and the global benchmark Brent to almost $70.

The Saudis need Brent to be at $80 at least (which means WTI has to be at $85 or more, given the minimum $5 premium for the global benchmark) and have offered to take 2.5 million barrels off their regular daily production of 11.5M via three cuts announced since November.

Last week, the Saudis offered their latest cut of one million barrels per day. That came after its 12 partners in OPEC, or the Organization of the Petroleum Exporting Countries, and 10 other allies, including Russia, in the OPEC+ alliance decided to stay pat on production.

But the market has rarely been on the same page with the Saudis.

Over the past six months, Brent briefly crested at $87 before returning towards $70 support on several occasions. WTI’s highest has been $83 plus versus lows of beneath $64 at one point.

Even Wall Street’s biggest bull — Goldman Sachs — cut its forecast for Brent on Monday, announcing a December average of $86 versus a previous $95. For WTI, it called a barrel at $81, down from $89.

Technical charts are showing a bigger drop likely. “Oil bears have been eyeing the 100-month Simple Moving Average of $59.60,” said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

John Kilduff, partner at New York energy hedge fund Again Capital, adds:

“The Saudis are keen to show their ability to positively surprise this market. Instead, what the longs in oil are getting these days are more negative surprises, sometimes those that are right down nasty.”

One of those emerged on Monday when New York-traded WTI crude for July delivery settled down $3.05, or 4.4%, at $67.12 per barrel after a session low at $66.83. Prior to that, the U.S. crude benchmark had lost 3.5% over a two-week stretch.

London-traded Brent officially finished Monday’s New York session at $71.84 per barrel, down $2.95, or almost 4%. Brent lost 2.8% over two prior weeks.

Oil’s latest tumble on Monday came ahead of key inflation data and a Federal Reserve decision that could set the direction for risk-taking across markets.

On Wednesday, the Fed’s policy-making committee is expected to vote for a break from a rate hike campaign that started in March 2022. The Fed pivot is widely anticipated despite an economy that’s still resilient and feeding inflation, contrary to persistent talk of recession.

Just ahead of the central bank’s decision, will be the May reading for the Consumer Price Index on Tuesday.

The so-called CPI hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 4.9% per annum in April, for its slowest expansion since October 2021. The Fed’s favorite price indicator, the Personal Consumption Expenditures, or PCE, Index, meanwhile, grew by 4.4% in April. Both the CPI and PCE are, however, still expanding at more than twice the Fed’s 2% per annum target for inflation.

Bloomberg provided just before the weekend a snapshot of analysts’ thoughts to show divided markets — and the Fed itself — were on a stay in rates:

“Those who prefer to skip a hike in June want to wait and see — given the long and variable lags of monetary policy — how 500 basis points of rate hikes to date are cooling the economy. More hawkish members are convinced rates aren’t yet restrictive enough, and the Fed shouldn’t risk falling behind the curve. We see a ‘hawkish skip’ as a way to maintain unanimity on the committee.”

Oil bulls also have a new problem — or rather, an old problem threatening to become new: an offer by Iran’s supreme leader to reopen negotiations with the West for a nuclear deal that could put some sanctioned Iranian crude back on a market already worried about demand.

Ayatollah Ali Khamenei said that a deal was possible if Iran’s nuclear infrastructure was kept intact. His comments came just a few days after both Tehran and Washington denied reports that an interim nuclear deal was close. They reignited fears of a nuclear deal, given that it could flood the market with supply as sanctions on Iranian crude exports are lifted.