Dollar Rises as Yellen, Fischer Spur Bets for Fed Rate-Increase

  • Greenback reverses earlier losses linked to longer-term policy
  • Policy makers see stronger economic growth and inflation

Fed's Yellen: Rate Hike Case Has Strengthened

The dollar rose to a two-week high after Federal Reserve Chair Janet Yellen said the performance of the U.S. economy and the outlook for inflation are giving the central bank more scope to raise interest rates.

The greenback gained versus all of its Group-of-10 peers as futures prices showed a 63 percent chance for a Fed rate increase by December, up from 57 percent before Yellen’s remarks in Jackson Hole Wyoming. Fed Vice Chairman Stanley Fischer said a rate increase in September is possible, in an interview with CNBC. The greenback fell earlier as traders focused on Yellen’s comments that the central bank will take a gradual approach to tightening policy.

“Fischer really maintained the focus on the near-term, whereas Yellen was a bit more comprehensive across the cycle,” said Eric Theoret, a foreign-exchange strategist at Bank of Nova Scotia in Toronto. “That’s where the distinction lies. Yellen’s was a broader discussion, Fischer’s was very much a narrow, near-term discussion and because of that we did see that broad dollar rally.”

Investors’ sentiment has oscillated in recent weeks on the pace of Fed monetary tightening after it raised rates in December for the first time since June 2006. The dollar’s 5 percent loss this year reflects a dimming outlook for the U.S. central bank to reduce stimulus and diverge from unprecedented easing in Europe and Asia.

Bloomberg’s Dollar Spot Index, which tracks the currency against 10 peers, rose 0.8 percent as of 5 p.m. in New York, reaching the strongest level since Aug. 9. It fell as much as 0.6 percent. The greenback gained 0.8 percent to $1.1198 per euro and added 1.3 percent to 101.84 yen.

Fed Watch

Investors “should respect when a predisposed dove says the case for tightening has strengthened,” said Mazen Issa, a senior foreign-exchange strategist at Toronto-Dominion Bank in New York. “All it took was Fischer on CNBC to reinforce Yellen’s statement.”

While the minutes from the Fed’s July meeting showed divisions within the rate-setting committee, New York Fed President William Dudley and San Francisco Fed President John Williams have signaled that a hike may be coming by year-end. Fed Bank of Kansas City President Esther George said inflation gains call for a near-term rate increase.

There’a a 42 percent chance of a boost to rates at the Fed’s next meeting on Sept. 21 , futures prices suggest. The dollar is forecast to strengthen by the end of the year to $1.09 per euro and 105 yen, according to the median estimates in Bloomberg surveys of analysts.

“We’re positioned for dollar strength,” said Jason Thomas, Los Angeles-based chief investment officer of Savos Investments, a unit of AssetMark Inc., an asset manager that oversees $31 billion.

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