Dollar at nine-month high on bets for Fed hike, Clinton victory

Reuters | Published: 13:50, Oct 24,2016

 
 

The dollar hit a nine-month high against a basket of currencies on Monday, buoyed by expectations that the US Federal Reserve will raise interest rates this year and by a receding chance of Donald Trump becoming US president.

Having just recorded three straight weeks of gains, the dollar index - which tracks the greenback against a basket of six major counterparts - reached as high as 98.846 in early trade on Monday, its loftiest peak since February 3.

On Friday, San Francisco Fed president John Williams said that "it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later."

His comments followed recent hawkish talk from central bank officials including New York Fed President William Dudley and Fed vice chair Stanley Fischer, which has prompted investors to price around a 70-per cent chance that the Fed will hike interest rates in December, according to CME FedWatch.

Analysts said the dollar had also been given a boost by recent opinion polling ahead of the November 8 US presidential election, which has favoured Democratic candidate Hillary Clinton over Republican Donald Trump.

"The dollar's firm - it's not going to fall sharply in the near-term. And I would suspect that if we get even more certainty on the US elections it will strengthen a little bit further," said BMO Capital Markets currency strategist Stephen Gallo, in London. "I suspect the Fed may not go if Trump wins."

Options positions on the US stock market suggested investors are pricing in a Clinton victory. Positioning data on options tied to the benchmark S&P 500 index showed little pickup in demand for contracts that would offer investors downside insurance in the event that stock prices take a major hit right after the election.

Dramatic news about either candidate could lead to foreign exchange market swings, said Shinichi Kashiwagi, head of market sales for Japan at National Australia Bank in Tokyo, and otherwise, "we need to wait until US GDP on Friday" for the next cue for dollar direction.

Disappointing US growth figures might lead investors to pare their expectations of a December hike.

Speculators raised their bets on the US dollar for a fourth straight week in the seven days up to last Tuesday, with net long positions hitting their highest since late January, Reuters calculations and data from the Commodity Futures Trading Commission showed on Friday.

The euro was down 0.1 per cent at $1.0873, inching back toward Friday's low of $1.0859, its lowest since March 10.

The European Central Bank kept interest rates at historic lows last Thursday and ECB president Mario Draghi kept the door open for more stimulus, quashing speculation that the bank was poised to taper its 1.7-trillion-euro asset-buying programme.

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