Dollar Rises to 4-Month High on Speculation Fed Is Close to Hike

August 4, 2015 Bloomberg

by Lananh Nguyen

The dollar rose to a four-month high before the Aug. 7 employment report that may provide the Federal Reserve with enough evidence to raise interest rates for the first time in almost a decade.

The greenback rallied versus most major peers as Fed Bank of Atlanta President Dennis Lockhart said in an interview with the Wall Street Journal that the central bank is close to a September rate increase. Futures prices showed traders were raising the likelihood of an increase next month.

“The comments from Lockhart have definitely helped bolster the appeal of the U.S. dollar again,” Scott Smith, senior market analyst at Cambridge Global Payments, a global foreign-exchange and payments provider, said by phone from Calgary. “What we’ve seen over the last week or so is still very conducive for the Fed to be lifting rates at some point this year.”

The Bloomberg Dollar Spot Index added 0.3 percent to 1,214.12 at 5 p.m. in New York, reaching its strongest level on a closing basis since March 17. The greenback added 0.6 percent to $1.0881 per euro and 0.3 percent to 124.38 yen.

Jobs Gains

U.S. payrolls probably rose by 225,000 in July, according to the median estimate of 83 analysts surveyed by Bloomberg News. That compares with 223,000 in June.

Traders are pricing in a 48 percent probability that the Fed will raise interest rates in September, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. That compares with the 38 earlier Tuesday.

“It should help keep the market pricing the potential for a September rate hike — with this Friday’s payrolls report also critical following the soft employment cost index,” said Matt Derr, a foreign-exchange strategist at Credit Suisse Group AG in New York. Comments by Lockhart, who votes on monetary policy this year, were “certainly helping” the dollar, he said.

The dollar dropped as much as 2 percent against its Australian counterpart as that nation’s central bank held interest rates unchanged and omitted any reference to further currency declines being necessary.

Reserve Bank of Australia Governor Glenn Stevens and his board kept the cash rate at a record-low 2 percent, as predicted by markets and economists following reductions in May and February. The Aussie is down more than 30 percent since a peak in 2011 versus the dollar.

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