FOREX-Dollar Hits 2-Month High on Projected Fed Rate Hike
* The dollar index hits its highest level in two months
* Fed Reports Earlier Than Expected Rate Hikes (US Afternoon Updates)
By Saqib Iqbal Ahmed and Elizabeth Howcroft
NEW YORK, June 17 (Reuters) – The dollar surged Thursday to a two-month high against a basket of currencies, a day after U.S. Federal Reserve officials surprised markets by forecasting a rate hike ‘interest and the end of emergency bond purchases sooner than expected.
Fed officials on Wednesday predicted an accelerated timeline for rate hikes, began discussions on how to end emergency bond purchases, and said the COVID-19 pandemic was no longer an essential constraint for American commerce.
A majority of 11 Fed officials have forecast at least two quarter-point rate hikes for 2023, adding that they will maintain their policy of support for now to encourage a labor market recovery.
The dollar index, which tracks the greenback against six major currencies, rose 0.53% to 91.892, its highest since mid-April. On Wednesday, the dollar jumped nearly 1%, its biggest daily percentage gain since March 2020.
“Arriving at the Fed meeting, we felt there was a risk of a more hawkish outcome that could strengthen the US dollar if that happened,” said Chuck Tomes, associate portfolio manager at Manulife Asset Management in Boston.
“For this reason, we have put some protection in case that happens,” he said.
Still, Tomes said he sees the dollar range weakening over the longer term.
The Fed’s new projection prompted some, including Goldman Sachs and Deutsche Bank, to drop calls for short selling on the dollar.
“We continue to forecast broad weakness in the US dollar, driven by the currency’s high valuation and a spreading global economic recovery,” Goldman Sachs analysts wrote in a note on Wednesday.
“However, the Fed’s more hawkish expectations and the ongoing debate over speed reduction appear to be a headwind for short-term dollar shorts,” analysts said, closing their recommendation to buy the euro. against the dollar.
The Australian dollar – seen as an indicator of risk appetite – fell 0.72% to 0.75545, its lowest since April 1.
Australia also presented bullish data, with job creation exceeding expectations in May and unemployment plunging to pre-pandemic lows.
The dollar was 0.77% higher against the Norwegian krone after the Norwegian central bank kept its key interest rate unchanged as expected, but said an increase was likely in September and stepped up its subsequent rate hike trajectory as the economy recovers from the effects of COVID-19.
The stronger dollar sent the pound below $ 1.40 to a new 5 week low.
Elsewhere, bitcoin was trading at $ 37,769.48, little change that day.
(Reporting by Elizabeth Howcroft; editing by John Stonestreet, Robert Birsel, Raissa Kasolowsky and David Gregorio)