Dollar Headed For Strong End to Week on Fed Comments
August 28 2015 - 4:49PM
Dow Jones News
By James Ramage
The dollar strengthened against the euro and the yen on Friday
as comments by the Federal Reserve's second-highest-ranking
official revived the possibility the central bank could raise
interest rates in the coming weeks.
Fed Vice Chairman Stanley Fischer told CNBC the Fed would need
to see how the circumstances surrounding China's currency
devaluation progressed before determining whether to raise the
benchmark, short-term interest rate from near zero--where it has
been held since December 2008--at the central bank's September
meeting.
Mr. Fischer's words anchored the final leg of the dollar's
turnaround over a turbulent week, when growing concerns about the
Chinese economy on Monday upended many consensus currency trades
and fueled a steep plunge in the dollar against the yen, euro and
Swiss franc.
"He clearly signaled that a September rate hike is still on the
table," said Vassili Serebriakov, currency strategist at BNP
Paribas. "It sends the message that the Fed is not overreacting to
the latest financial developments and that there's still time to
look at the data and at what markets are doing."
In response, the dollar advanced to its highs for the day. The
dollar gained 0.5% against the common currency, as one euro bought
$1.1190 in late-afternoon trade, about where the pair stood on Aug.
20. The dollar increased 0.4% versus the yen to Y121.46, and has
regained much of the 3% in value it lost earlier in the week.
Mr. Fischer spoke while attending the annual economic symposium
in Jackson Hole, Wyo., with other central bankers. His comments
joined a chorus of Fed officials over the week who have discussed
the improving U.S. economy and the turbulence rippling through
global financial markets.
Upbeat U.S. economic data over the week, underscored by numbers
for second-quarter growth, which rose at a 3.7% rate, have helped
the dollar. Investors had piled into the U.S. currency over much of
the past year in the belief that the U.S. economy would strengthen
faster than other regions, encouraging the Fed to raise borrowing
costs long before most other central banks.
Higher U.S. rates would enhance the dollar's allure, as they
would boost returns on assets denominated in the currency.
Many investors have pushed back their rate expectations into
late 2015 and even into next year. But most still like the dollar's
prospects over the coming year.
"We think the dollar uptrend is still on," Mr. Serebriakov said.
"If the Fed doesn't hike until December, the dollar may be in for a
slow period against the [euro and the yen] for the next couple of
months."
Write to James Ramage at james.ramage@wsj.com
(END) Dow Jones Newswires
August 28, 2015 16:34 ET (20:34 GMT)
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