Dollar hits 14-month high on new rate hike view
NEW YORK: The US dollar jumped to a 14-month high against the euro yesterday as investors bet the Federal Reserve would hike interest rates earlier than expected, a view that knocked down bond prices and helped dampen global equity markets.
The dollar consolidated broad gains from Monday after research from economists at the San Francisco Fed indicated investors may be underestimating when the US central bank is likely to hike rates.
Benchmark US Treasuries yields rose to their highest in over a month and European shares slipped for a third straight session as companies that trade dollar-denominated commodities such as oil took a hit.
The Fed research ramped up expectations that central bankers could signal an earlier-than-expected hike in rates at their policy-setting meeting next week on September 16-17.
Recent data indicating a steadily strengthening US economy also has bolstered the camp that believes rates may rise sooner than the mid-2015 consensus the market has expected.
“The Fed’s projections for the path of interest rates are already more materially aggressive, more rapid hikes, than the market implies by its pricing,” said Jake Lowery, fixed income portfolio manager at Voya Investment Management in Atlanta.
“The data over the last three months would at least give the Fed more confidence in that base case scenario,” he said.
The euro fell to a 14-month low of $1.2860 in European trading before rebounding to trade 0.18 percent higher at $1.2917. The greenback rose to a six-year high of 106.47 yen and last traded at 106.38 yen, up 0.34 percent.
The benchmark 10-year US Treasury note fell 9/32 in price to push its yield up to 2.5018. German bund futures fell 70 ticks to settle at 148.40.
Reuters
