Dollar Gains as Fed's Brainard Adds to Rate Hike Talk

  • March increase almost inevitable as Fed wants buffer: Mizuho
  • Aussie drops as trade data fall short of economist forecasts

Fed's Brainard Sees Fed Rate Hike Soon

A gauge of the dollar rose for a fifth day as Federal Reserve Governor Lael Brainard said an interest-rate increase is likely to be appropriate soon.

The U.S. currency climbed to a two-week high versus the yen as traders boosted the odds of a Fed move in March to more than 70 percent. Brainard, who had previously argued to keep rates lower for longer, said improving employment and inflation and better foreign growth have all bolstered the case for higher borrowing costs. Australia’s dollar weakened after trade data was below economists’ forecasts.

“A rate hike in March is almost inevitable as the Fed wants to create a buffer earlier rather than later against future downside risks to the economy,” said Daisuke Karakama, chief market economist for Mizuho Bank Ltd. in Tokyo. “The Fed may think now is the best time to build a buffer and raise rates while the Trump administration is not yet on solid footing.”

New York Fed President William Dudley and his San Francisco counterpart, John Williams, both signaled this week a greater willingness to tighten policy. “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation,” Brainard said Wednesday in a speech at Harvard University in Cambridge, Massachusetts. Chair Janet Yellen and Vice Chairman Stanley Fischer are both scheduled to speak Friday.

  • Bloomberg Dollar Spot Index gains 0.2%, after rising 0.8% during previous 4 days
  • Treasury 10-year yields rose 1bp to 2.46%. They jumped 6bps Wednesday
  • USD/JPY gains 0.3% to 114.04 after reaching 114.16, highest since Feb. 16
    • Pair may become top-heavy as several options expiries are lined up, with $1.62b strike at 114.50 Friday
    • USD/JPY offers from Japanese exporters are clustering between 114.50 to 115.00, according to an Asia-based FX trader; bids for real money names still sitting at 113.50/60
    • “Fed’s tone is very hawkish and the risk-on mood is quite strong,” said Simon Pianfetti, a senior manager in the market solutions department at SMBC Trust Bank Ltd. in Tokyo. “Upward momentum for the dollar is likely to persist until the Fed meeting. The next main level for dollar-yen is 115”
  • AUD/USD falls 0.3% to 0.7656 after country’s trade surplus shrank to A$1.3b in January, versus forecast of A$3.8b
  • NZD/USD dropped as much as 0.5% before trimming losses to 0.2%; Asia-based FX trader said it pared losses as option-related bids from 0.7100 strikes showed up for second time in 24 hours

— With assistance by Michael G Wilson

(Corrects company name for Simon Pianfetti.)
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