Dollar Keeps Winning Streak as Rate Premium Seen Holding Firm

  • Markets `too aggressive' in pricing out liftoff: Commerzbank
  • Goldman Sachs sees December Fed increase and 100bps in 2016

The dollar held on to its longest run of gains since March amid speculation that, even if the Federal Reserve doesn’t raise interest rates this year, at least it won’t be easing monetary policy further.

The same can’t necessarily be said of its European and Japanese counterparts. Speculation is rife that European Central Bank President Mario Draghi will signal an expansion of quantitative easing when he makes his regular policy address later Thursday. And while the Bank of Japan has suggested it has conquered deflation, investors still see a chance it will ramp up its bond-purchase program.

Bloomberg’s Dollar Spot Index, which tracks the greenback against 10 major peers, climbed 1 percent over the five days through Wednesday, even after futures traders halved the odds of a 2015 Fed rate liftoff since the U.S. central bank’s September meeting. The gauge was little changed at 1,197.00 as of 10:50 a.m. London time.

“Rate hikes by the Fed had been priced out too aggressively,” said Ulrich Leuchtmann, head of foreign-exchange strategy at Commerzbank AG in Frankfurt. “But at least the Fed won’t ease monetary policy while others might ease in the foreseeable future. Markets are increasingly pricing in further quantitative-easing measures from the ECB.”

Euro, Yen

The U.S. currency strengthened 0.2 percent to $1.1314 per euro, after touching a two-week high. It slipped 0.2 percent to 119.74 yen, again after a five-day advance.

Futures show a 32 percent probability of the Fed raising rates by December, data compiled by Bloomberg show. That’s about half the odds before policy makers left the benchmark near zero on Sept. 17, citing tepid price pressures.

The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase, compared with the current zero-to-0.25-percent target range. The first meeting with a probability above 50 percent is March, at 55 percent.

Goldman Sachs Group Inc. says the Fed will probably raise rates in December and follow that with a further 100 basis points of increases over 2016.

The ECB will keep its main rate unchanged at 0.05 percent today, according to all 53 economists surveyed by Bloomberg before the decision in Malta. Still, most analysts in a separate survey this month expected it to expand stimulus by year-end.

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