The dollar rises on optimism of rising US interest rates

NEW YORK: The dollar edged up against a basket of currencies on Monday as recent jobs data prompted some Wall Street banks to raise their estimates of how quickly the Federal Reserve will raise interest rates This year.

The dollar index, which measures the greenback against six major peers, rose 0.2% to 95.993. The index remains close to the 16-month high it reached at the end of November.

The dollar was supported by Friday’s closely watched jobs report, which suggested the US labor market was at or near maximum employment.

“A number of firms on the seller’s side have revised their Fed forecasts after Friday’s NFP (Non-Farm Payrolls) report,” Brad Bechtel, global head of foreign exchange at Jefferies, said in a note.

“With the unemployment rate below 4%, the Fed could likely declare its work on jobs ‘finished’, which effectively sets us up for a potentially even faster cutback period,” Bechtel said.

Goldman Sachs expects the Fed to hike interest rates four times this year and begin the process of downsizing its balance sheet as early as July. The investment bank, which previously predicted the Fed would hike rates in March, June and September, now expects another hike in December.

JP Morgan and Deutsche Bank also forecast an aggressive tightening of US monetary policy on Friday. According to CME’s FedWatch tool, traders put the odds of a rate hike in March at 80%.

The rise in Treasury yields – the benchmark 10-year US Treasury yield hit its highest level in nearly two years on Monday – also supported the greenback.

Traders have increased bets on rate hikes this year after the US central bank’s minutes of the December meeting suggested an earlier-than-expected rate hike and the possibility of the Fed reducing its bond holdings sooner. than many initially thought.

Investors will be following inflation data and testimonials from Fed Chairman Jerome Powell and Fed Governor Lael Brainard this week for clues as to when and how fast the rate hikes will be.

US consumer inflation data for December is expected to be released on Wednesday, with headline CPI estimated at 7% year-on-year, strengthening the case for an interest rate hike sooner. that late.

The pound fell 0.11% against the dollar on Monday, even as fears about the negative impact of the Omicron variant on the economy were eased, helped it climb to a nearly two-year high against the euro.

Cryptocurrencies, which came under pressure from the large-scale selling of risky assets earlier this year, weakened on Monday, with bitcoin down 1.3% to US $ 41,346.71.

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(Reporting by Saqib Iqbal Ahmed; Editing by Andrea Ricci and Paul Simao)

Stephen V. Lee