Dollar stands tall with March Fed rate hike in sight

The U.S. dollar ended higher against most major currencies on Wednesday as hawkish remarks from Federal Reserve officials bolstered market speculation for a rate-hike later this month.

The Mexican peso, seen as the most vulnerable to Trump’s protectionist policies, also took his speech in its stride, rising 0.5 percent to 19.996 pesos per dollar.

“If we look at gold’s performance over the course of the last five trading sessions, prices have hardly dropped at all, telling us that funds remain committed to the precious metal in light of what they view to be an uncertain USA legislative outlook”, Meir said.

The kiwi dollar fell as low as 70.98 U.S. cents overnight in what Kelleher called “a flash crash” because of a lack of liquidity.

On the other side, Fed officials have largely continued to speak optimistically about a near-term U.S. interest rate hike, with Patrick Harker repeating that 3 rate hikes are likely in 2017.

Investors will be keeping a close eye on Federal Reserve Chair Janet Yellen’s speech Friday afternoon for further clues regarding the outlook for rates. San Francisco and Philadelphia Fed Presidents John Williams and Patrick Harker have recently indicated interest in a potential March rate hike. Some more generally upbeat US economic data released recently and more hawkish remarks from Fed officials this week are setting the table for a USA interest rate hike soon. The euro dropped from a session high of 1.0550 to reach 1.0521.

Treasury yields also rose after Fed Governor Lael Brainard, the third official from the US central bank to make a hawkish statement this week, said late Wednesday that an improving global economy and a solid USA recovery meant it would be “appropriate soon” to raise rates. Williams said policy makers will give “serious consideration” to a rate boost on March 14-15, adding he doesn’t see a need to delay the next move.

“Assuming continued progress, it will likely be appropriate soon to remove additional accommodation” by raising rates, Brainard said in a speech at Harvard University.

The spot United States dollar index reached its highest in nearly two months, rising 0.4 per cent to 102.18 in late trade in NY on Thursday (7.25am Friday AEDT). Yellen noted that Fed officials themselves in December had predicted three rate increases in 2017.

The Fed has been hinting at a rate hike for some time now, but has been vague enough that they will have plausible deniability if they choose not to.

“The real news this week was the dramatic shift in rate hike expectations”, says Peter Boockvar, chief market strategist at the Lindsey Group, an investing firm.

The greenback climbed 1 percent to touch a two-week high of 113.88 yen, and gained half a percent against the euro to $1.0527.

February US nonfarm payrolls on Friday of next week will also be a key input for the Fed’s March meeting, Boye added.

The buck has risen to over a 1-month high of $1.2265 against the pound sterling Thursday afternoon, from a low of $1.2305 this morning.