Dollar Struggles to Gain Even as Better Data Boost Fed Rate Bets

  • Probability of higher rates in 2016 66% from 11% on Feb. 11
  • Gauge of economic data surprises jumps to highest in a year

The dollar is struggling to gain even as an improving U.S. recovery added to wagers that the Federal Reserve will raise interest rates this year.

A gauge of the greenback has risen just 0.8 percent since dipping to a three-month low on Feb. 11, the day after Fed Chair Janet Yellen signaled market turmoil may hurt the prospect of multiple rate increases. The currency has lagged behind the surge in two-year Treasury yields since then, which pushed the premium over Group-of-Seven counterparts to the highest in almost two months. The odds the Fed will raise rates in 2016 have climbed to 66 percent from 11 percent, as a measure of economic data surprises jumped to the highest in a year.

“With the uncertainties around the world, particularly emanating out of China, I don’t think that the global economy, including the internal economy within the U.S., is strong enough to take several rate hikes this year,” said Derek Mumford, a director at Rochford Capital Pty in Sydney. “Further gains in the U.S. dollar are likely to be limited because of the uncertainty. It’s a flip of a coin if rates go up at all in 2016.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 peers, rose 0.1 percent to 1,225.44 as of 1:18 p.m. in Tokyo from Wednesday, when it fell for a third day despite data showing a bigger-than-forecast increase in U.S. jobs.

Rising Yield

The greenback was little changed at $1.0859 against the euro, and added 0.6 percent to 114.11 yen following Wednesday’s 0.5 percent decline. Treasury two-year yields were at 0.85 percent after rising to 0.88 percent Wednesday, the highest since Jan. 27.

The Australian dollar rose for a fourth day against the greenback as oil climbed toward $35 a barrel and iron-ore futures on the Dalian Commodity Exchange traded at an eight-month high. Investors had shunned the currency as anxiety over China’s ability to manage a slowing economy clouded the outlook for global growth, casting doubts on the Fed’s ability to add to its December rate increase.

The Aussie gained 0.1 percent to 73.01 U.S. cents.

“What we have now is a short-covering rally across the risk space,” said Prashant Newnaha, a rates strategist at TD Securities Inc. in Singapore. “Short risk positions are being covered and this is helping the commodity currencies the most.”

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