The US dollar remains at seven week highs against a basket of major currencies on Friday, as the possibility of a US interest rate increase next month continued to support the greenback.
The USD/JPY pair surged 0.24 percent to 110.21, slightly lower than the earlier session’s three and a half week high of 110.37.
On Wedesday, the greenback climbed to a seven week high after the Federal Reserve’s meeting minutes fueled speculation that the central bank will increase US interest rates as soon as next month.
The US currency stretched gains against most of its peers after the announcement of policy makers’ discussions implied that they are moving closer to further tightening, following its move to raise interest rates for the first time in a decade last December. Emerging market currencies fell on the possibility of higher interest rates in the United States, as the Brazilian real, South African rand and the Russian ruble pacing downturn.
“The greenback should be bid here,” an executive director of foreign-exchange strategy in Canada stated. “The minutes suggest that the odds of a June hike or even a signal in June for a July hike are more likely than the market was prepared for.”
For the past two weeks, the US dollar has advanced, registering its longest run of gains since January as market players extended expectations for the Federal Reserve to boost borrowing costs. The greenback has trimmed down its 2016 loss to 3 percent amid statements from regional Federal Reserve presidents that at least two increases this year may be guaranteed.
“This is really going to give the market some renewed confidence in the dollar," a corporate dealer in Toronto commented. “We saw a couple of nice comments from the Fed, they recognize the fact that the market’s been wanting to hear a clear, concise message."
According to reports from the Commodity Futures Trading Commission, hedge funds lowered bets for the dollar to weaken against eight other currencies last week. After jumping over 20 percent against the euro within the past two years, experts see the dollar remaining near its current level of $1.12 per euro throughout the year.
The possibility of the Federal Reserve boosting interest rates at its June 14-15 meeting more than doubled from Tuesday to 32 percent, while the likelihood of a move by September surged to 62 percent from 47 percent a day earlier.
Moreover, New York Federal Reserve President William Dudely said on Thursday that the strength of the US economy could be enough to justify a rate increase in June or July.
On the other hand, EUR/USD gained 0.09 percent to 1.1212. However, the currency pair stays near to Thursday’s seven week low of 1.1180.
The US dollar index, which measures the health of the greenback against six major currencies, was firm at 95.27, just below the previous session’s seven week peak of 95.51.
Important Takeaways from the Fed Minutes
Market players kept a close eye on the minutes from the Federal Reserve’s April meeting on Wednesday after central bank officials advised that markets may be underestimating the chance of an interest rate increase next month.
Recalling the previous statements of three Fed Regional Presidents, Fed officials wanted to correct the market’s misconception by presenting developments that could affirm an increase as early as June.
This notable hint mirrored the central bank’s expectations that all-important employment market would continue to strengthen, improving forecasts for economic activity and inflation over the medium term. Officials also acknowledged the recent decline in exposures posed by global economic and financial conditions.