Dollar Set for Best Week Since November After Post-Fed Tumble

  • Currency climbs versus most of its 16 major peers Thursday
  • St. Louis Fed President says officals may be nearing hike

How the Dollar and Emerging Markets Are Affecting the Fed

The dollar headed for its best week since November, climbing from a nine-month low reached last week, as Federal Reserve policy makers hinted that they may raise interest rates in the next few months.

The U.S. currency advanced versus most of its major peers as Fed Bank of St. Louis President James Bullard said officials may be getting close to lifting rates again, provided growth continues as forecast. Government releases on Thursday showed fewer jobless claims than forecast in the week through March 19 and durable goods orders fell less than projected last month.

Investors are slowly shifting back into the greenback after a cautious tone from Fed policy makers at their March 15-16 meeting sent the dollar tumbling. Traders are refocusing on the U.S. economy to evaluate whether incoming data can sustain a rebound in the currency. Employers likely continued to bolster the headcount this month, a report April 1 is forecast to show.

“The dollar, from a broad perspective, I think there’s probably still some more room to strengthen, if the U.S. data’s good,” said Eric Stein, the Boston-based co-director of global fixed income at Eaton Vance Corp., which oversees around $302 billion. “Again, we get a dovish Fed statement that seems to lead to hawkish commentary afterwards.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, is set for its biggest weekly gain since the period ending Nov. 6 and was little changed at 1,199.99 at 5 p.m. in New York. The dollar gained 0.5 percent to 112.90 yen and was little changed at $1.1174 per euro.

Markets in the U.S., Europe and parts of Asia are closed Friday for national holidays.

Mixed Signals

U.S. data have steadily improved over the last few weeks, with Bloomberg’s gauge of economic surprises advancing to the highest in more than a year.

“The next rate increase may not be far off provided that the economy evolves as expected,” Bullard said in New York on Thursday. Futures contracts show traders see an 8 percent likelihood of a rate increase at policy makers’ meeting next month, and a 41 percent probability in June.

The Bloomberg Dollar Spot Index has fallen 2.6 percent this year, after a 9 percent gain in 2015 and an 11 percent rally the year before.

“The data should continue to strengthen, it should continue to surprise a little bit and that should be sufficient for them to go in June,” Binky Chadha, chief global strategist at Deutsche Bank AG, said in an interview on Bloomberg Television. The upside for the greenback may be limited as “the dollar itself has also priced in a lot.”

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