Dollar Holds Gains Near Two-Month High on Outlook for U.S. Rates

  • Greenback climbs against Canadian dollar as JPMorgan adds bets
  • Fed’s Williams says two or three hikes ‘about right’ in 2016

The dollar traded near an almost two-month high as speculation mounted that interest-rate increases are ahead for the U.S.

The U.S. currency paused after its best streak of weekly gains since January, as San Francisco Federal Reserve President John Williams said he sees two or three rate increases in 2016, adding to a string of pro-tightening commentary from policy makers. The greenback advanced against its Canadian peer as JPMorgan Chase & Co. said it was adding bets on the U.S. dollar versus the so-called loonie.

Currency traders are reassessing the outlook for higher rates in the U.S. after Fed officials reinforced the message of minutes from the central bank’s April meeting, namely that a June hike is possible. The Fed is weighing how to raise rates with minimal market disruption, after its first-in-a-decade increase in December.

“We’ve seen expectations shift quite significantly already and the dollar’s responded to that,” said Ian Gordon, a foreign-exchange strategist at Bank of America Corp. in New York. “Unless we see a sharp improvement in the data, the dollar’s probably going to look a little range-bound.”

The Bloomberg Dollar Spot Index was little changed as of 5 p.m. in New York, after adding 3.2 percent during the previous three weeks and reaching the highest level on an intraday basis since March 28. The greenback added 0.2 percent to C$1.3143.

Fed Watch

Williams’s comments about the path of rate increases follow remarks last week from Richmond Fed chief Jeffrey Lacker, who sees a strong case for raising rates in June.

Hedge funds and other large speculators trimmed bets against the dollar to a net 10,653 contracts last week. That’s the smallest position, either bullish or bearish, since June 2014.

“The resurgence of the dollar has gained additional momentum as Fed repricing has lurched back to the forefront of foreign-exchange markets,” JPMogran strategists led by John Normand, head of foreign exchange, commodities and international rates research, wrote in a note May 20. “A fuller repricing of hikes starting June/July should mean at least a 2.5 percent further rally in the trade-weighted dollar.”

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