Dollar remains flat as investors await Fed’s policy meeting

A flat dollar index and dollar index futures are hovering around 110 on Monday. As traders anticipate a 75-basis point interest rate hike by the Federal Reserve on Wednesday, the greenback is expected to strengthen in the coming days.

The markets, however, are also putting their money on signs that inflationary pressures are beginning to ease in the coming months, which will encourage the Fed to soften its hawkish stance in the coming months. There has been a fall in the dollar's value and US Treasury yields in October due to this notion.

Events of the week

As the battle against sky-high inflation continues, the Federal Reserve and the Bank of England are all but assured that they will deliver another jumbo 75-basis-point rate increase on Wednesday and Thursday, respectively. In light of the fact that investors are on the alert for signs that aggressive monetary tightening could be slowing, Friday's US jobs report for October, as well as Monday's Eurozone inflation report will capture investors' attention. Moreover, with earnings season at its halfway point, it will be interesting to see how US equities fare in the weeks ahead as they adjust to disappointing corporate results.

It is expected that there will be a record high of 10.2% in November's flash inflation estimate for the Eurozone which will be released on Monday.

EU GDP figures are in focus

It is widely believed that policymakers were in agreement that the European Central Bank will continue tightening their monetary policy in the coming months to prevent inflation from becoming entrenched, despite concerns about a looming recession, after they delivered their second 75-basis-point rate hike in a row last Thursday.

In the wake of the European energy crisis precipitated by the Russian war in Ukraine, the economic effects of already high inflation have been exacerbated. This has resulted in a slowdown in consumer spending in Europe.

On Monday, the euro area will also release preliminary GDP figures for the third quarter. These are expected to show a slight expansion of the economy, although most economists believe that the economy will enter contraction territory in the fourth quarter of the year.

China’s manufacturing fell into the contraction zone

There is still a lot of caution among investors regarding any further economic disruptions in China, especially after Beijing reiterated its commitment to enforcing a strict zero-COVID policy. According to data released on Monday, the country's manufacturing sector unexpectedly shrank in October compared with September. A resurgence of COVID-19 cases has been reported in several economic hubs in recent months, which has also unexpectedly reduced business activity in those areas.

As a result of the reading, there have been growing concerns regarding a slowdown in China's economic activity, as the country has still been hit with a string of lockdowns this year. Following an increase in COVID infections in recent days, economic hubs such as Wuhan and Chengdu have decided to reinstate COVID curbs policies.