Dollar hovers near four-week peak as markets mull Fed hike odds

By Medha Singh and Satoshi Sugiyama

July 28 (Reuters) - The U.S. dollar steadied adjacent a four-week precocious connected Tuesday arsenic traders assessed the anticipation of a Federal Reserve involvement complaint hike this week, adjacent arsenic falling lipid prices offered immoderate alleviation connected the ostentation ‌front.

The dollar index, which measures the greenback against a handbasket of currencies including the yen and the euro, was astir level astatine 101.50 ‌after touching its highest since July 1. The euro ticked up 0.05% to $1.1370. Against the Japanese yen, the dollar traded astatine 163.745, portion sterling gained 0.1% to $1.330.

The dollar's resilience reflects a crisp ​repricing of Fed expectations successful caller months. Treasury yields person climbed steadily since April arsenic the U.S.-Iran struggle stoked concerns astir ostentation and a hawkish debut from Fed Chair Kevin Warsh reinforced expectations of higher involvement rates.

While lipid prices person retreated aft the U.S. paused attacks connected Iran implicit the weekend, yields stay adjacent their multi-month highs.

"The determination successful U.S. yields has been rather almighty successful explaining the dollar's moves," said Dominic Bunning, caput of G10 FX strategy astatine Nomura successful London.

He said ‌there was a hazard that investors person go excessively ⁠convinced of a near-term complaint hike, meaning immoderate dovish result could unit traders to unwind long-dollar positions.

Net agelong dollar positions were astatine their highest since 2015 successful the latest week, play U.S. regulator information showed.

The Fed concludes its two-day argumentation ⁠meeting connected Wednesday, with a increasing fig of large brokerages informing that policymakers could rise rates, fixed this month's surge successful lipid prices.

Markets are pricing a astir 40% accidental of a 25-basis-point complaint summation connected Wednesday, up from astir 20% a week ago, according to LSEG data. Traders spot astir a 95% probability of a hike by September.

Investors ​will ​also look to U.S. second-quarter GDP information and the Fed's preferred ostentation gauge, halfway ​PCE inflation, this week.

In different large currencies, the Australian dollar ‌weakened 0.3% versus the greenback to $0.697, arsenic Australia's cardinal slope main Michele Bullock said underlying ostentation remained excessively precocious and a further slowdown successful home request whitethorn beryllium required to tame prices. New Zealand's kiwi traded astatine $0.5772.

PACKED CENTRAL BANK WEEK

The Bank of England and Bank of Japan are wide expected to support involvement rates unchanged astatine their meetings connected Thursday and Friday, respectively, portion maintaining a cautious stance connected inflation.

Traders person been connected involution ticker for weeks arsenic the yen's unabated descent pushed it to caller 40-year lows against the dollar astatine 163.99 past week.