FX Roundup: Dollar takes centre stage again on Fed comments
Updated : 17:54
The dollar took centre stage on Friday, as president of the US Federal Reserve Bank of Cleveland, Loreta Mester, said the country’s economy can handle an interest rate increase and the longer rates remain at zero the greater the risks to financial stability.
She added that the labour market will continue to improve and workers’ compensation will accelerate. At 1652 GMT, the dollar shrugged off lacklustre macro effects and rose 0.20% against the yen exchanging at JPY122.85 and 0.85% against the Swiss franc exchanging at CHF1.0086.
Meanwhile, the pound fell 0.15% against the dollar to exchange at $1.5210, and the euro fell 0.83% to change hands at $1.0724. “When the dollar rises even after poor economic news, it is a clear sign that markets have concluded that a rate hike is on its way,” said IG’s senior market analyst Chris Beauchamp.
Kit Juckes, head of forex at Societe Generale, concurred. “The Fed will raise rates in December, unless put off by softer economic data, falling commodity prices, a strong dollar or emerging market volatility. So markets can get properly edgy in the run-up.”
“Meanwhile, the ECB appears ready to ease further in the same month. The dollar will continue to be supported for the next month by this prospect. What happens after that depends on how broader markets react. A negative risk reaction would see both yen and euro outperform the dollar.”
Elsewhere, the Australian dollar was down 0.15% against its US counterpart at US$0.7115. The New Zealand dollar also slipped into the red, falling 0.29% to change hands at US$0.6524.
In Latin America, the dollar traded higher against the Colombian peso (up 1.58%), Brazilian real (up 1.47%) and Chilean peso (up 0.35%), but fell against the Mexican peso (down 0.14%). The greenback also rose 0.36% against the Canadian dollar exchanging at CAD$1.3339.
Where and when the dollar peaks will depend more on how expectations about terminal Fed funds evolve than what happens in December. “That suggests the dollar's peak is some way away - in late 2016 or early 2017,” Juckes added.