US recap: EUR/USD suffers as Fed, Ukraine top the agenda

Sept 20 (Reuters) – The dollar index rose on Tuesday on hawkish Fed hike expectations and resurgent safe-haven buying after reports that Russian-installed leaders in occupied areas of four Ukrainian regions set out plans for referendums between Sept. 23-27 on joining Russia.

As it neared the US close, the dollar index was up 0.65% at 110.25, slightly below its 2022 high of 110.79, as markets awaited this week’s main event: Wednesday’s Fed policy announcement.

Futures have fully factored in a 75bp hike and see a 17% chance of 100bp increase.

Higher US rates remain key support for dollar strength, with futures projecting fed funds will close 2022 near 4.2%, well above the 2% foreseen in the euro zone, zero percent in Japan and even the 3.7% discounted for Britain.

EUR/USD traded near its session lows in late-US dealings, down 0.56% at 0.9968.

Safe-haven dollar buying on heightened Ukraine-Russia tensions added to weakness in EUR/USD, which moved further below the 10-day moving average — at 1.0012 — that it has straddled in recent sessions.

USD/JPY headed toward the close on the high side of its recent range, up 0.3% at 143.62, with diverging US-Japan rates keeping the yen on the back foot.

Tuesday’s geo-political angst lifted USD/JPY closer to 145, a level seen increasing the threat of Japanese intervention.

Recent trading ranges near 100-pips hint that traders may be engaging in gamma trading ahead of 145.

GBP/USD neared its 2022 lows in late trade, slipping 0.56% to 1.1368, just above the Sept. 16, 2022 low 1.1351.

Expectations that the Fed will hike by 75bp on Wednesday weighed on cable even with futures assigning a 75% chance of the BoE delivering a similar rate increase at its meeting on Thursday IRPR.

Equities remained soft, with the S&P 500 dipping to one-month lows by 3,827 amid hawkish Fed expectations and Ukraine-related risk selling. June’s low of 3,637 is coming into sharper focus.

US Treasury yields extended higher, with the two-year reaching a 15-year peak at 3.99% before moving lower after a strong 20-year auction.

Cryptocurrencies slid amid rising global rates and broadly negative risk markets, Bitcoin ending NorAm 3.5% lower at USD 18.8k, ETH down 2.8% at USD 1,337,

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are their own.)