A Korea Exchange Bank employee counts one hundred U.S. dollar banknotes during a photo opportunity at the bank’s headquarters in Seoul April 28, 2010. REUTERS/Jo Yong-Hak

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HONG KONG, Jan 31 (Reuters) – The dollar retained most of last week’s gains on Monday, but held just above its highest level in 18 months against major currencies as the headwinds lower in the markets that have withdrawn part of the supply of safe-haven assets.

The prospect that investors could see renewed volatility this week remains, however, with key meetings of Australian, UK and European central banks taking place in the days ahead.

The euro was at $1.1161, up 0.16%, after falling to $1.1119 on Friday, its weakest since June 2020. The Aussie was at $0.701, up 0.35% , after touching its lowest since July 2020 on Friday.

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The greenback had its best week in seven months last week, buoyed by investors seeking safety amid a sell-off in riskier assets and analysts raising their expectations for U.S. interest rate hikes . Read more

MSCI’s main 50-country global index (.MIWD00000PUS) is heading for its worst month since the start of the pandemic, although Asian markets regained some calm on Monday. Read more

Market prices now suggest more than a 90% chance of at least four Fed rate hikes by the end of the year and a 67% chance of at least five.

“The USD ‘smiled’ again, supported by a combination of rate revisions and much weaker risk sentiment,” Barclays analysts said.

Looking ahead, they said the potential for further dollar gains based on rate hike expectations was limited as last week’s moves mean an “aggressive normalization cycle” is now priced in, although that weak and volatile stocks can push it up.

The dollar index, which measures the greenback against six major peers, was at 97.131, down 0.1% but still close to Friday’s 18-month intraday high of 97.441.

The yen was at 115.47 to the dollar, in the middle of its recent range, buffeted by the headwind of US rate hike expectations with little prospect of rate hikes in the country, but buoyed by some demand as as a safe haven.

With US payrolls figures released on Friday, the focus this week shifts a bit from the Fed to other central banks.

Australian watchers await Tuesday’s central bank meeting, amid growing expectations that it will announce the end of its quantitative easing program. This will be followed by a speech from the RBA Governor on Wednesday and a statement on monetary policy on Friday.

The week “will go a long way in defining market psychology for the next few months,” Westpac analysts said. “That QE ceases will come as no surprise, so the focus is on the RBA’s evolving economic view and its implications for the (benchmark) cash rate.”

The Bank of England also holds its meeting on Thursday, with a Reuters poll of economists predicting a second rate hike in less than two months, as the BOE rolls back more pandemic stimulus, after inflation hit its peak. highest level in almost 30 years. Read more

The European Central Bank also has a policy meeting on Thursday. Although no policy change is expected, analysts are beginning to warn that the Fed’s approaching rate hikes will reduce the ECB’s window for action. Read more

In cryptocurrencies, bitcoin was just below $37,700, following a quiet weekend for the digital asset.

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Reporting by Alun John; Editing by Sam Holmes

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