Dollar Gains as Yellen Says Fed on Track to Raise Rates in 2015

  • St. Louis central bank Bullard adds 'I’d like to get going'
  • Greenback climbs against most major currencies this week

Federal Reserve's Inflation View: Target or Ceiling?

The dollar posted its biggest weekly gain in two months after Federal Reserve Chair Janet Yellen said the central bank is still on track to raise interest rates this year.

The U.S. currency extended its gains after data showed the economy expanded more than previously estimated in the second quarter. In her speech Thursday, Yellen firmly put herself in the camp of Fed officials who favor a rate liftoff this year. The comments helped reignite confidence that the world’s biggest economy is strong enough to withstand tighter monetary policy, even as global growth slows and market volatility increases.

"There was more emphasis on the strong reasons for hiking by the end of the year," said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. "It’s helping risk sentiment. The GDP numbers also helped. It can end up to be a good week for the dollar."

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, gained 0.2 percent to 1,214.14 at 5 p.m. in New York, extending its weekly advance to 1 percent, the most since the five days ended July 17.

The improvement in risk-taking sentiment helped boost volatility this week. JPMorgan Chase & Co.’s gauge of global currency volatility rose to 11.2 percent, from 10.5 percent last week.

Bullard View

Echoing Yellen, St. Louis Fed President James Bullard said Friday "I’d like to get going" on raising rates, although it’s not clear whether there’ll be enough additional data by the Oct. 28 meeting to convince policy makers to pull the trigger. Economists in a Bloomberg survey expect the nonfarm payroll data due Oct. 2 to show continued improvement in the labor market.

There’s a 43 percent probability the Fed will raise rates by its Dec. 15-16 meeting, according to data compiled by Bloomberg based on futures. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

“Yellen was clearly more hawkish by reiterating firmly that she expects the Fed to raise rates still this year,” said Mansoor Mohi-uddin, a senior markets strategist at Royal Bank of Scotland Group Plc in Singapore. “The market was expecting a more dovish justification for last week’s unchanged decision. The market reaction was positive for the dollar.”

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