Dollar Rally Slows as Investors Fully Price in Fed December Hike

Updated on
  • Currency may weaken in 2017, CIBC World Markets says
  • Greenback trades near its strongest level since January

The dollar fluctuated against its major peers as traders looked beyond the Federal Reserve’s December policy meeting in search of fresh impetus.

A gauge of the U.S. currency was little changed Tuesday after climbing to levels last seen in January a day earlier. The dollar has tracked Treasury yields higher as futures traders fully priced in an interest-rate hike for the Federal Reserve’s Dec. 14 policy decision partly on speculation that President-elect Donald Trump’s economic policies will fuel inflation.

The dollar may run out of steam early next year as the Fed continues its slow and gradual approach to raising rates, according to CIBC World Markets Inc.

"The dollar is flying after Donald Trump’s victory, and the rally should continue into early 2017 -- thereafter, the greenback could weaken," Royce Mendes, an economist at CIBC World Markets, wrote in a note. "Although that’s fully priced into markets, the delivery of the first hike since 2015 could see markets add to expectations for further tightening, giving the dollar a temporary boost."

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.1 percent as of 5 p.m. in New York. The greenback gained 0.3 percent to 111.14 yen.

The Fed will release minutes from its November meeting on Wednesday. The market-implied odds of action at the central bank’s Dec. 13-14 meeting have reached 100 percent, according to Bloomberg calculations based on futures.

— With assistance by Chikako Mogi, Daisuke Sakai, Anooja Debnath, Hiroko Komiya, and Kevin Buckland

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