Forex »

US Dollar Index Rebounds from 4 1/2 Month Low as Rate Hike Strategy Materializes

Share on StockTwits
Published on
US Dollar Index Rebounds from 4 1/2 Month Low as Rate Hike Strategy Materializes

The US dollar rebounded strongly against a basket of currencies, as the forex markets continued to pour into the greenback amid renewed rate hike expectations.

The Federal Open Market Committee surprises no-one Wednesday when it announced it would trim bond purchasing by another $10 billion. The Fed did layout a firmer rate hike strategy, one that could see the central bank raise interest rates in the first half of 2015.

Fed policymakers expect interest rates to rise to 1 percent in 2015. By the end of 2016, the cost of borrowing should be 2.25 percent, fresh forecasts showed.

Rate hike expectations could keep the US dollar elevated amid slumping economic data. The Fed confirmed yesterday severe weather was responsible for at least part of the broad economic slowdown in recent months, vindicating a broad consensus of economists.

The US dollar index emerged from a four-and-a-half month low. As of Thursday afternoon, the index was at 80.22, gaining nearly 0.3 percent.

The dollar was stronger across the board. The EURUSD pair backtracked to 1.3752 before consolidating at 1.3775, a loss of more than 0.3 percent. The GBPUSD pair fell beneath 1.65, where it would remain as of the early afternoon trade. The USDJPY consolidated at 102.48, a gain of 0.1 percent, after touching a one-week high of 102.67 the prior evening.

Fed Chair Janet Yellen indicated there would be a considerable gap between the end of quantitative easing and the first rate hike. Given the Fed is eying an autumn finish to QE, a rate hike is likely to materialize in the first half of 2015.

Share on StockTwits