Navigation
Login
About USForex
Wall Street Journal - Dollar Rallies on U.S. Interest-Rate Hopes
Monday, 13 April 2015
The dollar climbed in a broad rally Monday on renewed optimism among investors that the Federal Reserve would stay on track to raise interest rates this year.
The greenback’s resurgence chalked up big losses against many rivals, with the euro headed toward a 12-year low, both the Australian and New Zealand dollar losing more than 1%, and the Turkish lira hitting a record low against the buck.
“We are having a big shift back toward U.S. dollar strengthening,” said Camilla Sutton, chief currency strategist at Scotiabank.
The dollar’s ascent this year had paused in recent weeks, with investors pushing back their expectations of a Fed rate increase amid some disappointing U.S. economic data. But growth in other major economies also seemed to be stalling, underlining the policy divergence between the Fed and many other central banks.
Despite the weaker-than-expected data, “the U.S. still stands out as an island of stable growth on a global scale,” said Lennon Sweeting, a San Francisco-based dealer at broker and payment provider USForex Inc. “Even if the Fed doesn’t raise rates in June, they’re still on a path toward policy tightening, while a number of economies are loosening policies,” he said.
The renewed dollar strength was also helped by earnings season, as many U.S. corporations convert their overseas revenues into dollars, driving up the demand for the greenback, Mr. Sweeting said.
Among the major currencies, the euro was 0.3% lower against the dollar at $1.0575, nearing its recent lows at $1.0457 and rekindling speculation that the dollar is on course to hit parity with the single currency soon. The euro had rebounded to more than $1.10 earlier this month.
Analysts at BNP Paribas said the effects of the European Central Bank’s bond-buying program, which has driven down yields on bonds inside the eurozone, is likely to weaken the euro further. “We expect the negative real yields associated with (quantitative easing) in the eurozone to force eurozone investors increasingly into foreign markets,” driving down the currency, they said.
The dollar was also buoyed by optimism that the Fed wouldn’t try to weaken the dollar. Chairwoman Janet Yellen’s remarks on the currency’s negative effects on exports and inflation following the March Federal Open Market Committee meeting had raised doubts about whether the Fed would tolerate a stronger dollar.
But the meeting’s minutes, released last week, showed “there were not as many concerns (about the dollar strength) as anticipated,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank in Frankfurt. “The markets have been given the green light to further buy the dollar and drive the dollar appreciation further.”
Currencies that are regarded as “high yielders” were among the biggest losers against the dollar. The Australian dollar and the New Zealand dollar fell 1.3% and 1.2%, respectively, against the greenback to 75.80 cents and 74.40 cents. Losses were heavy in some emerging markets as well. The Turkish lira dropped 1.6% to an all-time low of 2.6699 against the dollar, and the South African rand was down 1.2%. The Brazilian real declined 1.4% to 3.1199 against the dollar.
These currencies have benefited from years of low U.S. interest rates, as their countries’ relatively higher rates drew investors. With the prospect of rising interest rates in the U.S., this advantage is diminishing for them, as the dollar emerges as an alternative that not only has higher yields, but is also safer and more liquid, Ms. Nguyen said.
The WSJ Dollar Index, which tracks a basket of currencies, rose 0.2% Monday, after posting a 1.7% gain last week.
On Monday, only a few currencies managed to post a gain against the dollar. The Russian ruble was up 2.2%, continuing its rebound against the U.S. currency. The Japanese yen edged up 0.1% to Y120.058 to the dollar, after Koichi Hamada, an adviser to Prime Minister Shinzo Abe, said the dollar’s current level at Y120 is too weak for the yen, considering purchasing parity. The British pound, after spending most of the day in negative territory, managed to rise 0.3% to $1.4679 after falling to its lowest level in nearly five years.
From: The Wall Street Journal
