Dollar Gains on Jobs-Growth Signal Before 'Historic' Fed Meeting

  • Bloomberg dollar index rises to highest level in a decade
  • Fed chair says delayed tightening would risk a recession

The dollar rose to the strongest in more than a decade after Federal Reserve Chair Janet Yellen said the U.S. economy is ready for an interest-rate increase, echoing her central bank colleagues before they gather in two weeks.

The U.S. currency strengthened against most of its major peers as Yellen said a belated tightening in monetary policy may “inadvertently push the economy into recession,” while Fed Bank of Atlanta President Dennis Lockhart said he favors raising interest rates this month for the first time in almost a decade. The dollar pared gains versus the euro in afternoon trading, as investors await the outcome of the European Central Bank meeting on Thursday.

"The Yellen comments made it quite plain that the Fed’s going to raise rates," said Douglas Borthwick, head of foreign exchange at New York-based brokerage Chapdelaine & Co. "The dollar, though, may have reached the point where positioning is saturated. It’s likely you’ve already priced in the Fed raising rates and the ECB pushing for more quantitative easing."

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, added O.2 percent to 1,235.81 as of 5 p.m. New York time, after rising as much as 0.6 percent to touch the strongest level in more than a decade.

The dollar rose 0.2 percent to $1.0615 against the euro after reaching the strongest level since March. The greenback gained 0.3 percent to 123.24 against the yen.

Jobs Report

The Federal Open Market Committee is considering raising borrowing costs at its next meeting Dec. 15-16 as the economy expands and the labor market shows signs of progress. Yet, officials have warned that the dollar’s appreciation will limit the pace of tightening. 

“Absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling,” Lockhart said in the text of remarks Wednesday in Fort Lauderdale, Florida. "It is possible a greater strength of the dollar is not priced in yet. I am viewing it as a risk to the outlook, but I am not assuming it.’’

The Bloomberg Dollar Spot Index has gained 9.3 percent this year after an 11 percent increase in 2014.

"We continue to view the overall health of the U.S. economy as very strong," said Omer Esiner, chief market analyst at currency brokerage Commonwealth Foreign Exchange Inc. in Washington. "Today, we revert back to the divergence outlook between the Fed and the ECB."

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