Dollar rises with bets on hawkish Fed; sterling drops

NEW YORK : The dollar rose on Thursday as U.S. Treasury yields increased and investors eyed hawkish comments from Federal Reserve officials, while the British pound fell as investors were left unimpressed by the UK government’s latest budget.

The greenback rebounded a little after falling in recent weeks as inflation data and Fed policymakers’ remarks had fuelled bets that the U.S. central bank could soon slow the pace of its interest rate hikes.

But at an event on Thursday, St. Louis Fed President James Bullard showed a graphic suggesting that even dovish assumptions would require the central bank’s policy rate to rise to at least around 5 per cent, while stricter assumptions suggest it would be above 7 per cent. The federal funds rate is currently in the 3.75 per cent-4.00 per cent range after a spate of aggressive hikes.

Joe Perry, senior market analyst at FOREX.com and City Index in New York, also pointed to Fed Chair Jerome Powell’s focus on the terminal rate rather than the pace of increases.

While he expects the dollar to go lower in the long term, Perry sees the “opportunity for a bounce to 109.25 or so in the dollar index, and then rolling over and continuing lower.”

“Vice versa in the euro, we could see it pull back to $1.01 and then bouncing higher as well,” he said.

Bullard spoke a day after San Francisco Fed President Mary Daly – until recently one of the most dovish officials – added to doubts about a change of direction from the central bank by saying a pause was off the table.

Brad Bechtel, global head of FX at Jefferies, described Bullard’s presentation as “relatively hawkish” and also noted that the gain in U.S. Treasury yields was also helping the dollar on Thursday.

Also noting sterling’s move on Thursday, Bechtel said investors were concerned by UK finance minister Jeremy Hunt’s budget, which included tax increases and tighter public spending aimed at cooling inflation and restoring the country’s economic reputation.

“The budget had some holes and wasn’t all that impressive from a markets standpoint,” Bechtel said. “They’re plugging a hole by slamming the consumer. You’ve an economy that’s falling and a cost of living crisis, and they’re raising taxes.”

The British pound was last down 0.53 per cent at $1.1850 after earlier falling as much as 1.25 per cent to $1.17645. The euro was up 0.26 per cent against the pound at 87.43 pence.

Against the dollar the euro was last down 0.30 per cent at $1.0364 after dropping as much as 0.86 per cent earlier in the session. Earlier this week it had briefly touched $1.048, its highest level since July.

The dollar index, which measures the greenback against six major peers, was recently up 0.38 per cent at 106.687. After hitting a 20-year high in late September, the index had lost more than 8 per cent when it touched its most recent intraday low on Tuesday.

Against the Japanese yen, the greenback was last up 0.44 per cent at 140.1650 after falling earlier in the session. At its peak on Thursday it had risen 0.83 per cent.

The Aussie dollar was down 0.82 per cent at $0.6682, while the Kiwi was down 0.46 per cent to $0.6121.

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Currency bid prices at 3:14PM (2014 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0364 $1.0395 -0.30 per cent -8.84 per cent +$1.0407 +$1.0306

Dollar/Yen 140.1650 139.5500 +0.44 per cent +21.76 per cent +140.7300 +138.8800

Euro/Yen 145.26 145.02 +0.17 per cent +11.46 per cent +145.4700 +144.4600

Dollar/Swiss 0.9521 0.9452 +0.74 per cent +4.38 per cent +0.9557 +0.9435

Sterling/Dollar $1.1850 $1.1913 -0.53 per cent -12.38 per cent +$1.1957 +$1.1765

Dollar/Canadian 1.3333 1.3328 +0.02 per cent +5.43 per cent +1.3400 +1.3314

Aussie/Dollar $0.6682 $0.6741 -0.82 per cent -8.03 per cent +$0.6751 +$0.6635

Euro/Swiss 0.9867 0.9817 +0.51 per cent -4.84 per cent +0.9869 +0.9808

Euro/Sterling 0.8743 0.8720 +0.26 per cent +4.08 per cent +0.8772 +0.8696

NZ $0.6121 $0.6146 -0.46 per cent -10.61 per cent +$0.6168 +$0.6065

Dollar/Dollar

Dollar/Norway 10.1190 9.9930 +1.36 per cent +14.97 per cent +10.1875 +10.0060

Euro/Norway 10.4922 10.3930 +0.95 per cent +4.79 per cent +10.5153 +10.3918

Dollar/Sweden 10.6136 10.4753 +1.18 per cent +17.69 per cent +10.6707 +10.4590

Euro/Sweden 11.0008 10.8728 +1.18 per cent +7.49 per cent +11.0201 +10.8809