World Economy

Dollar Rises as Fed Rate Hike Still Possible

Dollar Rises as Fed Rate Hike Still PossibleDollar Rises as Fed Rate Hike Still Possible

The dollar pulled away from seven-week lows on Friday, after better-than-expected US inflation data kept alive bets the Federal Reserve would raise interest rates this year, and as expectations grew for more euro zone easing, according to Reuters.

Annual inflation in the euro zone turned negative in September, data confirmed on Friday, maintaining pressure on the European Central Bank to increase or extend its asset purchase program to boost prices. That helped push the euro half a percent down on the day to $1.1335.

ECB policymaker Ewald Nowotny raised expectations for further stimulus on Thursday, saying it was “obvious” that additional instruments were necessary to spur price growth in the euro zone.

Those comments were followed by upbeat US inflation numbers, which showed a surprise 0.2% monthly rise in the September core consumer price index, reviving bets that the Fed could still hike rates this year.

The dollar rose 0.3% against a basket of major currencies on Friday to 94.644, well clear of a seven-week low of 93.806 hit the previous day.

“I don’t think the inflation data was instrumental but at the margin it pushes in that direction (of the Fed hiking in December),” said RBC Capital Markets’ head of FX strategy in London, Adam Cole.

The euro fell half a percent to a one-week low of $1.1335, with a speech later in the day from ECB Executive Board member Benoit Coeure set to be scrutinized for further clues on what to expect at next week’s ECB meeting.

“It’s our expectation that they (the ECB) extend the duration of the program beyond the current commitment but I don’t think that’s fully priced yet,” said Cole.

Commerzbank currency strategist Esther Reichelt in Frankfurt said she did not expect the ECB to announce further measures as soon as next week, but that the market would be watching ECB chief Mario Draghi for signals that he would be willing to act should disinflationary pressures persist.

Reichelt also said she still saw a December Fed rate hike as possible.

“Whether they’ll actually be able to commit to a specific pace of rate hikes afterwards, which is the most important for the US dollar, is a different question,” she said.

New Zealand’s dollar was the biggest mover among major currencies, falling 0.9% against a broadly stronger US dollar to $0.6785 and reversing all of the previous day’s gains.