Wednesday, March 23, 2016

FOREX-Dollar hits one-week high as Fed officials talk rate hikes

The dollar rose to a one-week high against a basket of major currencies on Wednesday, boosted by hawkish comments from U.S. Federal Reserve officials.

The dollar index .DXY, which tracks the U.S. currency against six major rivals, rose about 0.5 percent to 96.090, the highest since March 16.

Several members of the U.S. central bank in recent days have suggested the Fed should move to raise rates. Higher rates make U.S. investments more attractive against other currencies and would be expected to support the dollar.

The dollar rose against the yen JPY=[1], moving near a one-week high against the Japanese currency and turning positive for the month. It was last up 0.3 percent at 112.69 yen. It also hit one-week highs against the euro and sterling.

The greenback also rose broadly against oil-linked currencies as crude futures fell about 2 percent in morning U.S. trading. The Canadian CAD=[2] and Australian dollars AUD=[3], as well as the Norwegian crown NOK=[4] and Mexican peso MXN=[5], each fell by around 1 percent.

Three-month sterling implied volatility GBP3MO= soared as investors prepared for turbulence exactly three months before a referendum on Britain's EU membership. The currency had been the biggest loser among major currencies on Tuesday, with the attacks in Brussels seen boosting the "Brexit" campaign.

"Obviously, we're seeing continued sterling weakness on the back of increased Brexit risks," said Ian Gordon, FX strategist at Bank Of America Merrill Lynch in New York.

"But I think the broad dollar move is really driven by the overall positive tone of the (Federal Open Market Committee) speakers that we've heard over the past couple days."

Philadelphia Fed President Patrick Harker said on Tuesday the central bank should consider another hike as early as next month if the U.S. economy continues to improve, and that he would prefer at least three hikes before year-end.

Chicago Fed President Charles Evans also said he expects two more rate increases this year, unless economic data comes in a lot stronger than expected or inflation picks up faster than anticipated.

Wednesday's moves pushed the dollar back near its levels prior to the Federal Reserve's March meeting, in which the central bank unveiled a reduced expectation for rate hikes and Chair Janet Yellen warned of threats to the global economy, prompting a dollar selloff.

"The FOMC speakers that we've heard since the FOMC meeting last week have generally sought to offset the dovish interpretation and the dovish language in the statement," Gordon said, "and very much are keeping April and June on the table as potential times for a hike."

(Reporting by Dion Rabouin; Additional reporting by Jemima Kelly; Editing by Jonathan Oatis)

References

  1. ^ JPY= (www.reuters.com)
  2. ^ CAD= (www.reuters.com)
  3. ^ AUD= (www.reuters.com)
  4. ^ NOK= (www.reuters.com)
  5. ^ MXN= (www.reuters.com)

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