Dollar Near Seven-Month High Against Euro Before Fed Minutes

  • U.S. currency strongest in 12 years on trade-weighted basis
  • Odds of December liftoff 66%, versus 50% at end of October

The dollar traded near a seven-month high against the euro before the release of minutes of the Federal Reserve’s October meeting, when policy makers signaled the potential for an interest-rate increase this year.

A trade-weighted gauge of the greenback is at the highest in 12 years as Fed Chair Janet Yellen and other policy makers have made numerous pronouncements in the past month that it may be appropriate to boost rates from near zero at its Dec. 15-16 gathering. The probability the central bank will act next month has risen to 66 percent from 50 percent odds at the end of October.

“The onus is on the minutes to highlight some sort of discussion about whether October was possible in order to move the pricing for a December hike further from here,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “On those occasions where the U.S. dollar does dip, people are prepared to step in, but they don’t want to drive it any further from here.”

The dollar was little changed $1.0647 per euro as of 6:31 a.m. in London after appreciating to $1.0631 on Tuesday, the strongest level since April 16. The U.S. currency fell 0.1 percent to 123.27 yen, following a two-day gain of 0.7 percent.

Trade-Weighted Strength

A trade-weighted index of the U.S. currency climbed to 121.4995 on Nov. 13, the highest since April 2003, according to data compiled by Bloomberg. It has increased 13 percent in the past year.

The odds of December liftoff have climbed from as low as 33 percent on Oct. 2, according to futures data compiled by Bloomberg. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

“On a short-term basis you might see some volatility, but the dollar’s going to be pretty resilient against everything else,” said Kelvin Tay, regional chief investment officer at UBS Group AG’s wealth management business in Singapore.

(An earlier version of this story was corrected to fix the name of the U.S. Dollar Index.)

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