Dollar rockets to two-week high versus yen as Fed officials signal rate hikes
The dollar rose Monday to its strongest level against the yen in three weeks after several top Federal Reserve officials hinted that the central bank would raise interest rates at least once by the end of 2016.
The greenback USDJPY, +0.43% advanced to ¥102.38 in recent trade, its highest level since Aug. 9. By comparison, it traded at ¥101.82 late Friday in New York.
The PCE price index, the Fed’s preferred measure of inflation, showed consumer prices climbed closer to the central bank’s 2% target in July, which also helped support the greenback.
But while Monday’s data helped support the Fed’s case for raising interest rates, the week’s main event will follow on Friday when the August nonfarm-payrolls report is set to be released, said Naeem Aslam, chief market analyst at ThinkForex.
“The NFP number has a massive potential to dial the move for the dollar in any direction,” Aslam said. “Until then we may just continue to see the dollar moving higher or consolidating.”
In his remarks on Friday, Fed Vice Chairman Stanley Fischer said the August jobs report could help sway the committee.
In other trading, one euro EURUSD, -0.2858% bought $1.1168, compared with $1.1196 late Friday in New York. One pound GBPUSD, -0.5329% bought $1.3073, compared with $1.3134 late Friday.
The WSJ Dollar Index BUXX, +0.33% a measure of the dollar against a basket of major currencies, was up 0.3% at 86.75.
Fed officials talk up the dollar
On Friday, Fed Chairwoman Janet Yellen said she believes “the case for an increase in the federal-funds rate has strengthened in recent months.” Separately, Fed Vice Chairman Stanley Fischer signaled in a CNBC interview that the Fed could raise interest rates as soon as next month.
With that in mind, the Fed funds futures market is now pricing in a nearly 50% chance of at least one hike by the end of 2016. Odds of a 2016 rate hike have crept higher all summer after falling to zero in June following the U.K.’s vote to leave the European Union.
In theory, higher interest rates would help support the dollar by raising the return on dollar-denominated assets.
Source: MarketWatch
