Dollar holds near two-week high on rate rise speculation

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Tokyo - The dollar held near a two-week high after economic data and comments this week from Federal Reserve officials revived speculation of an interest-rate increase later this year.

The greenback jumped the most since September 16 against its major peers on Tuesday after Fed Bank of Richmond President Jeffrey Lacker urged the central bank to tighten policy to stem a likely quickening of inflation.

A report on Monday showed US manufacturing expanded in September. Fed Bank of Chicago President Charles Evans said on Wednesday he expects one rate increase by the end of the year. Jobs data due later this week is forecast to show a pickup in the pace of hiring.

“The dollar is being supported by improved economic data releases, such as manufacturing and higher consumer confidence ahead of an expected Fed hike in December,” said Jason Wong, a currency strategist at Bank of New Zealand in Wellington.

“We think the dollar has more upside potential over the next 6-12 months with higher interest rates and inflation the key drivers and the elections the main risk factor.” 

The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, was little changed as of 07:55, after climbing 0.6% on Tuesday, when it touched the highest level since September 21. The greenback bought ¥102.89 from ¥102.90 in New York, after rising for six straight days through Tuesday in the longest winning streak since August.

Dollar preference

“There seems to be a natural preference to buy dollars in this world where it’s hard to find positive yields,” said  Kuniyuki Hirai, manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ in New York. “And the dollar is safe. With uncertainties in Europe and the US presidential election, money tends to flow toward the dollar.”

US retail sales this holiday season may grow at a faster pace than last year, fueled by rising wages and a stronger job market, the National Retail Federation said Tuesday. The probability of a Fed rate hike by December has risen to 61%, up from about 50% on September 27, futures data show.

Evans comments

Speaking to reporters after a speech in Auckland, New Zealand, Evans, who’s not a voting member on the Federal Open Market Committee until next year, said the US central bank could raise the benchmark interest rate as soon as next month. Fed Bank of Cleveland President Loretta Mester said on Monday that the economy is ripe for a rate increase.

“Those who had become doubtful of a rate increase this year are now paring their bearish view somewhat as it seems clear the Fed wants to lift rates before the end of this year,” said Takao Hattori, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

“But given the uncertainty over the rate course next year, the dollar’s testing the upside of a range” which would be around ¥103.50 against the yen, he said.

The New Zealand dollar slid 0.4% to 71.84 US cents after the price of whole milk powder fell 3.8% at auction overnight.

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