Dollar Rises to 2-Week High as Fed Officials Back 2015 Liftoff

Updated on
  • Lockhart joins Williams, Bullard, Lacker in rate-rise talk
  • U.S. currency rises against euro and other major peers

The dollar climbed to a two-week high after Federal Reserve officials made the case for an interest-rate increase this year, adding to the relative allure of debt denominated in the U.S. currency.

The currency rose for a second day against the euro and strengthened against its major peers. Fed Bank of Atlanta President Dennis Lockhart said he remains confident the central bank will raise interest rates this year, even as recent market volatility raised risks to the economic and inflation outlook. That follows explanations from three other policy makers over the weekend who gave their rationale for enacting a rate increase at one of the Fed’s two remaining meetings of 2015.

“This dollar rally could have legs,” said Matt Weller, an analyst at Gain Capital Holdings Inc.’s unit in Grand Rapids, Michigan. “The Fed speakers are trying to guide the market back to a potential rate hike in December” after an “overreaction” to their decision to keep interest rates near zero last week, Weller said.

The dollar gained 1 percent to $1.1190 per euro and was up 0.5 percent at 120.56 yen as of 5 p.m. in New York. The Bloomberg Dollar Spot Index rose 0.5 percent to 1,207.56.

Fed Watch

“I put most of the decision weight on prudent risk management around recent and current market volatility,” Lockhart said in a speech in Atlanta Monday, referring to his vote backing the Fed’s decision. “As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment. I am confident the much-used phrase ‘later this year’ is still operative.”

San Francisco Fed President John Williams, a policy centrist who has worked closely with Chair Janet Yellen, said Sunday it was a close call to delay a rate rise at last week’s Federal Open Market Committee meeting.

Williams’s comments on Fox News Channel’s “Sunday Morning Futures with Maria Bartiromo” echoed remarks he made the day before, and echoed the reasoning of St. Louis Fed President James Bullard and Richmond Fed President Jeffrey Lacker. Both weighed in on Saturday over the FOMC’s vote to leave rates near zero.

Yellen speaks Sept. 24 in Amherst, Massachusetts, where she may elaborate on the central bank’s thinking.

“The only thing that the market can really focus on with certainty is Fed policy speakers,” said Eimear Daly, a currency strategist at Standard Chartered Plc in London. “For euro-dollar, we definitely see it moving lower.”

The dollar has risen 4.4 percent in the past three months, the second-best performer after the yen among 10 developed-nation peers, according to Bloomberg Correlation-Weighted Currency Indices. The greenback surged this year amid speculation that the U.S. central bank will boost borrowing costs in contrast to easing by its global peers.

“The European Central Bank and Bank of Japan are being an activist force in easing policy, even if the Fed is uncertain at the moment about its timing on hiking,” said Daly at Standard Chartered.