Dollar hits three-week
high on Fed rate hike bets
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[June 20, 2017]
By Jemima Kelly
(Reuters) - The dollar hit a three-week high against a basket of
currencies on Tuesday, after an influential Federal Reserve official
said U.S. inflation would pick up as wages improved, bolstering bets on
the Fed continuing to raise interest rates.
The greenback got a further lift on Tuesday when Bank of England
Governor Mark Carney said now was not the time to raise British interest
rates, sending sterling down more than half a percent against the U.S.
The dollar index - which measures the greenback against six other major
currencies, including sterling - edged up to 97.623 <.DXY>, its highest
since the end of May.
New York Fed President William Dudley said on Monday that tightening in
the labor market should help drive up inflation, reinforcing the message
that a recent patch of weak data is unlikely to derail plans to keep
raising interest rates.
Separately, Chicago Fed President Charles Evans said on Monday it may be
worthwhile for the U.S. central bank to wait until year-end to decide
whether to raise interest rates again.
"Bill Dudley commonly represents the majority view on the FOMC (Federal
Open Market Committee) - this is the main reason why the dollar is
appreciating," said Commerzbank strategist Thu Lan Nguyen, in Frankfurt.
"Evans was more dovish but he's known to be dovish."
"These comments from Bill Dudley have brought the market a little bit
close to the Fed's view, but just a little bit," added Nguyen, calling
the market's general view on the Fed's rate path "pessimistic" compared
with the central bank's own projections.
Investors are now pricing in around a 50-percent chance that rates will
be raised again by the end of the year, according to CME FedWatch.
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An employee of a bank counts US dollar notes at a branch in Hanoi,
Vietnam May 16, 2016. REUTERS/Kham
Against the yen, the dollar rose to as high as 111.90 <JPY=>, its
strongest level since May 26. That marked a gain of almost 3 percent
from the dollar's near 2-month low of 108.81 yen set on June 14.
The greenback last stood at 111.67 yen, up 0.1 percent on the day.
The greenback has edged higher since the Fed on June 14 raised interest
rates for a second time in 2017 and announced it would begin cutting its
holdings of bonds and other securities later this year, while indicating
that a recent softening in inflation was seen as transitory.
The dollar may see further gains against the yen, especially after Bank
of Japan Governor Haruhiko Kuroda last week indicated the BOJ would be
in no hurry to dial back its massive stimulus program, said Tan Teck
Leng, forex analyst for UBS Wealth Management in Singapore.
"Short-term, maybe the dollar/yen could be the one that's more
interesting," Tan said. However, any weakness in U.S. inflation data
going forward would pose a risk for dollar bulls, he added.
(Additional reporting by Masayuki Kitano in Singapore;
Editing by Andrew Heavens)
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