Dollar Rises as Fed's Williams Emboldens December Liftoff Bets

  • Central bank rate-boost likelihood rises to 74%, futures show
  • Commodity currencies decline as metals prices fall on China

The dollar advanced against most of its major peers as a Federal Reserve policy maker reiterated that interest rates will rise this year if economic reports continue to be encouraging.

The greenback reached a seven-month high against the euro as San Francisco Fed President John Williams said there is a “strong case” for a rate increase in December if U.S. data hold up. Underscoring the policy divergence, European Central Bank President Mario Draghi encouraged speculation that policy makers will ease next week by saying it will do what it must to raise inflation. Hedge funds ramped up wagers on dollar strength last week by the most since August 2014.

"We’ve built up some long dollar positions, they’re getting pretty large pretty quickly," said Robert Sinche, an analyst at Amherst Pierpont Securities LLC in Stamford, Connecticut. "When you look at the dollar against the majors, you sort of wonder what’s left in terms of new information." A long position is a bet that asset will increase in value.
 

The dollar appreciated 0.1 percent to $1.0636 per euro at 5 p.m. New York time. It touched $1.0593, the strongest since April 15. The greenback was little changed 122.84 yen.

The U.S. will revise its estimate of third-quarter gross domestic product, due on Tuesday, to 2.1 percent from 1.5 percent, according to the average estimate of economists in a Bloomberg survey. Monday’s data will consist of existing-home sales, manufacturing and a gauge measuring overall economic activity.

“Assuming that we continue to get good data on the economy, continue to get signs that we’re moving closer to achieving our goals” and are gaining confidence that inflation will move back toward the Fed’s 2 percent target, there’s “a strong case that can be made in December to raise rates,” Williams said Nov. 21, speaking with reporters at the University of California at Berkeley on Saturday.

Futures Signal

Traders see a 74 percent chance the central bank will raise its benchmark rate at its next meeting, according to futures data compiled by Bloomberg. That’s up from 50 percent at the end of October. The calculation assumes the effective fed funds rate averages 0.375 percent after the first increase, compared with the current zero-to-0.25 percent target range.

Commodity currencies tumbled as metal prices plunged to multiyear lows. The currencies of New Zealand, Australia and South Africa led losses against the dollar after copper fell through $4,500 for the first time since 2009, while nickel dropped to the lowest level since 2003 after Chinese smelters announced plans to cut production.

“This is not a really welcoming environment for risk-taking,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. “Liquidity is beginning to dry up as people are waiting for what happens in December with the Fed. Worries about China persist.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE