Article Highlights

  • Canadian dollar rises 1 percent on prospect of BOC rate hike
  • Pound again under pressure after Friday slide
  • Prospect of softer Brexit counters economic, political worries
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The dollar slipped against a basket of major currencies on Monday ahead of a spate of central bank meetings, starting with the U.S. Federal Open Market Committee on Wednesday.

The dollar index, which tracks the greenback against six major currencies, edged down 0.1 percent after a spike in the Canadian dollar.

The loonie gained 1 percent following remarks from Bank of Canada Senior Deputy Governor Carolyn Wilkins that the bank was considering reducing its monetary policy stimulus.

An interest rate increase would be the first for Canada’s central bank in seven years.

The Canadian dollar is the fourth-largest component in the dollar index, which also tracks the U.S. currency against the euro, Japanese yen, British pound, Swedish crown and Swiss franc. The loonie rose to its highest against the dollar since April 18.

The yen rose 0.5 percent against the dollar, pushing its gains to more than 4 percent versus the greenback since mid-May.

The dollar’s losses were limited, however, as investors almost universally expect the Fed to increase U.S. interest rates this week while other central banks, including the Bank of England and Bank of Japan, which conclude policy meetings on Thursday and Friday, respectively, are expected to remain on hold.

Fed fund futures prices show traders see about a 96 percent chance the U.S. central bank raises overnight interest rates on Wednesday, according to CME Group’s Fedwatch tool.

The expected Fed rate hike, along with a more accommodative stance from the European Central Bank after last week’s policy meeting and an expectation for the Bank of England to stay on the sidelines because of political uncertainty, have helped the dollar fight off a wave of recent negative data on the U.S. economy.

Sterling dipped 0.7 percent after a more than 2 percent drop following last week’s snap British elections that left the Conservatives short of a ruling majority and cast a cloud of political uncertainty over the country.

“The foreign exchange narrative is being dictated by the dynamics of (British Prime Minister) Theresa May’s negotiations in trying to form enough of a government so the Conservatives have the ability to rule,” said Juan Perez, currency strategist at Tempus Inc in Washington.

Sterling fell 0.7 percent to $1.2650.

The euro rose 0.1 percent against the dollar to $1.1205. (Reporting by Dion Rabouin; Editing by Dan Grebler)