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Forex - Dollar steady at 9-month highs, sterling lower

Published 10/25/2016, 08:27 AM
Updated 10/25/2016, 08:27 AM
© Reuters.  Fed rate hike bets support dollar near 9-month highs; sterling lower

© Reuters. Fed rate hike bets support dollar near 9-month highs; sterling lower

Investing.com - The dollar was trading at nine-month highs against the other major currencies on Tuesday amid expectations for higher U.S. interest rates, while the pound slid ahead of remarks by Bank of England Governor Mark Carney later in the day.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 98.69.

The index has rallied 3.44% so far this month as hawkish remarks by Federal Reserve officials in recent weeks solidified expectations for a rate hike before the year’s end.

Expectations for higher interest rates typically boost the dollar by making the currency more attractive to yield-seeking investors.

On Monday, Chicago Fed President Charles Evans said the U.S. central bank could raise rates three times between now and the end of next year so long as the inflation outlook and the labor market remain on track.

Also Monday, data showed that activity in the U.S. manufacturing sector rebounded in October.

The Fed’s next meeting is in November, but a rate hike ahead of the presidential election is seen as unlikely.

Investors currently price a 72.5% chance of a rate hike at the Fed\'s December meeting; according to federal funds futures tracked by Investing.com\'s Fed Rate Monitor Tool.

EUR/USD eased to 1.0870, holding just above Friday’s seven-month trough of 1.0858.

The single currency remained on the back foot after the European Central Bank indicated last week that it could expand its stimulus program in December.

The euro shrugged off data showing that German business confidence hit a two-year high this month, despite uncertainty over the Brexit vote and the upcoming U.S. presidential election.

The dollar rose to a one-and-a-half week against the yen, with USD/JPY up 0.32% to 104.5, not far from a two-and-a-half month high set earlier this month.

Sterling slid lower, with GBP/USD at 1.2215 amid worries that Mark Carney could flag the need for additional monetary easing when he speaks later Tuesday.

Carney is due to testify about the economic consequences of the Brexit vote before the Economic Affairs Committee in the House of Lords.

The BoE head has said that inflation will rise because of the fall in the value of the pound and the bank has to weigh increased inflation against supporting the economy with low interest rates.

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