FOREX-Dollar set for biggest rise in three weeks as Fed eyed

The dollar rose on Friday and was set for its biggest weekly gain in three weeks as investors squared up for a U.S. central bank meeting next week where policymakers might signal when it plans to cut interest rates for the first time in a decade. But with bets on U.S. interest rates swinging massively - market expectations are now for three rate cuts until end-2019, versus three hikes foreseen just six months ago - investors are growing cautious that policymaker rhetoric might underwhelm.

"There is a risk that the Fed might not be as dovish as what markets expect next week," said Fritz Louw, a currency strategist at MUFG Bank based in London. Markets are pricing in about a 33% probability of a quarter-point rate cut next week and as many as 73 basis points in cumulative rate cuts through the end of the year.

Against a basket of its rivals, the dollar rose 0.1% to a one-week high of 97.09. Elsewhere, the Australian and New Zealand dollars fell as bets on interest rate cuts undermined demand as a Group of 20 meetings later this month kept investors sidelined.

The Aussie fell 0.24% to $0.6892 and was down 1.5% for the week, the biggest decline since mid-May. The Kiwi dollar dropped 0.4% to $0.6529, down 2% for the week. Bond futures imply a 66% probability the Reserve Bank of Australia will follow up it's recent quarter-point easing with another in July. If not, a reduction to 1% is considered certain by August.

Markets were also raising bets of a rate cut by the Reserve Bank of New Zealand. The weakness in the Australian dollar has pushed investors to unwind some of their carry trades, where speculators borrow in a low-yielding currency such as the Swiss franc and invest in relatively higher-yielding ones such as the Australian dollars.

The Australian dollar/Swiss franc cross, a barometer for such speculative bets, has fallen nearly 6% in eight weeks, indicating hedge funds were losing money on such bets. 

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)