NEW YORK, March 19: The dollar firmed against other major currencies on Friday as investors positioned for an interest rate hike from the US Federal Reserve and possibly a more aggressive monetary stand from the central bank. The euro fell to $1.3321 from 1.3375 late on Thursday in New York. The single currency fell as low as 1.3212 but rebounded later as a jump in oil prices dented the dollar’s rally. The greenback rose to 104.75 yen from 104.55 on Thursday. The dollar remained buoyed by the technical bounceback seen since disappointing US current account data earlier this week and as investors continued to shun emerging markets, such as Poland and Peru. Another rate hike from the Fed expected Tuesday of a quarter-point may help attract more money to dollar-based investments; additionally, some analysts say the central bank may signal a more aggressive move on rates later this year. Before the Fed started raising its key Fed funds rate last summer, the cost of borrowing in the United States, at 1.00 per cent, was 1.0 percentage point lower than the European Central Bank. Now US interest rates are up at 2.50 per cent, compared with 2.0 per cent in Europe, and are expected to be hiked a further quarter point at the next rate-setting meeting on March 22.
Although another quarter point rise was widely priced in, analysts said there was some risk that the Fed would introduce greater flexibility in its language.
The Fed is more worried about inflation than about an economic slowdown, said Kathy Bostjancic, senior economist at Merrill Lynch. You can see that in their comments and speeches.
This “suggests a more hawkish tone by the Fed” that have prompted the futures market to price in a 30 per cent chance of a half-point rate hike at the June meeting.
Lower oil prices also have taken some of the pressure off the dollar.
Oil prices have backed off the recent record high and this is lending a degree of support to the dollar, said Paul Jackson, a senior foreign exchange dealer with CMC Group in New York.
Although the fall in crude has only been very marginal, essentially it’s a move in the right direction and there’s also a growing consensus that the high prices are unlikely to damage consumer confidence, at least for the time being.
The April contract on the New York Mercantile Exchange ended up 32 cents at $56.72 a barrel — the highest closing on record, but below the all-time intraday high of 57.60 dollars a barrel set a day earlier.
In addition, reports that South Korea has no plans to change the proportion of reserves it holds in the US currency have helped underpin the dollar.
Although the Wall Street Journal said the South Korean central bank is looking to maximize profits from its foreign-exchange holdings by investing in a broader range of assets, it had no plans to alter its dollar reserves.
Last month, the Bank of Korea sparked a wave of dollar selling when it said it intended to “diversify” its reserves, which traders interpreted as a hint that the bank would start selling the sliding dollar.
In late New York trade, the dollar stood at 1.1637 Swiss francs from 1.1567 Thursday.
The pound was trading at $1.9220 from 1.9249 late on Thursday.—AFP
