Wed, Mar 23, 2016 - Page 15 News List

US Federal Reserve might raise interest rates next month

Bloomberg

A gauge of the US dollar dropped yesterday, halting a two-day advance, as comments by US Federal Reserve officials suggesting the central bank might raise interest rates as soon as next month failed to boost the US currency’s appeal.

The US dollar weakened against most of its major peers as traders saw only a 10 percent probability of a US rate hike next month, even after San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart said recent economic data might justify additional policy tightening.

The Bloomberg Dollar Spot Index has weakened 1.7 percent since policymakers softened their outlook for the pace of interest-rate increases this year at this month’s meeting. Neither Williams nor Lockhart vote on the Federal Open Market Committee (FOMC) this year.

“I do not think any short-term comments would change the fact that the FOMC decision last week was clearly taking a dovish structural view,” said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd in Singapore.

“Amid some volatility, the [US] dollar will be in a downward trend” in the next month, Idris added.

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 peers, fell 0.1 percent to 1,188.34 at 6:46am in London, following a two-day, 0.6 percent, advance.

The US currency fell 0.2 percent to US$1.1258 per euro. The greenback rose 0.1 percent to ¥112.06, adding to a 0.5 percent gain over the previous two days.

The Australian dollar strengthened against its developed-market peers after Reserve Bank of Australia (RBA) Governor Glenn Stevens made no reference to the level of the currency during a speech in Sydney yesterday, saying that the economy is “adjusting quite well” to lower commodity prices, and has more fiscal and policy scope to respond to a global downturn than most nations.

The RBA’s attempts to talk the local currency lower last year ran afoul of the US Department of the Treasury, which chided officials by reminding them of their commitment to a freely floating exchange rate.

The US representative office at the IMF in September last year “expressed concern over the authorities’ public statements on the desired direction of the exchange rate,” regarding Australia, it said on Monday in Washington.

The Australian dollar strengthened 0.5 percent to US$76.18. It has climbed more than 6 percent this month and over 11 percent from a near seven-year low reached in January.

The Fed’s post-meeting statement on Monday prompted traders to scale back expectations for a hike in June to 42 percent, down from a 52 percent probability seen a week earlier, futures contracts showed.

Macquarie Bank, one of the world’s top-10 currency forecasters, last week reversed its three-month forecast for the US dollar after the Fed halved projections for how many times it would hike rates this year from four times in December last year, citing the potential impact from weaker global growth on the US economy.

“The [US] dollar declines we saw last week were justified in terms of the Fed’s communication, but maybe that communication was poor given what we have heard since from Fed officials,” said Ray Attrill, co-head of currency strategy at National Australia Bank Ltd in Sydney.

“The [US] dollar can get some respite from here, though I am not sure that the market is going to run far with this,” as more focus is likely to be on any comments from Fed Chair Janet Yellen, and voting members William Dudley and Stanley Fischer, Attrill added.

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