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Dollar gains as market preps for tighter U.S. monetary policy

ForexSep 19, 2014 03:36PM ET
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Dollar firms on sentiments global monetary policies may be diverging - The dollar traded higher against most major currencies on Friday as U.S. monetary policy appears set to diverge from Europe and Japan.

In U.S. trading on Friday, EUR/USD was down 0.67% at 1.2837.

The dollar rallied against the euro on expectations for U.S. and European monetary policies to diverge.

Earlier this week, the Federal Reserve suggested it plans to close its bond-buying stimulus program next month and hike interest rates in 2015.

While some time will pass between those two policy moves, rate hikes could come quickly once the U.S. central bank moves to tighten, investors have concluded, which bolstered the greenback.

Meanwhile across the Atlantic, the euro came under pressure after the European Central Bank on Thursday said it allotted €82.6 billion to 255 bidders in its new Targeted Long Term Refinancing Operation, or TLTRO. The figure was well below the €100 to €150 billion predicted by analysts.

The European Central Bank recently cut interest rates and announced it would purchase asset-backed securities to stimulate the economy, which has softened the euro.

Elsewhere, market talk that the Bank of Japan bought one-year government debt at negative yields softened the yen, which added to the greenback's appeal.

While the BoJ has bought three- and six-month bills at negative yields in the past, the decision to buy one-year debt that will lose money added to market speculation that monetary authorities are ramping up their efforts to stimulate the economy and reach a 2% inflation target.

The dollar was up against the yen, with USD/JPY up 0.23% at 108.94, and up against the Swiss franc, with USD/CHF up 0.72% at 0.9404.

The greenback was up against the pound, with GBP/USD down 0.54% at 1.6309.

The pound strengthened earlier after Scottish voters rejected a referendum on independence and opted to remain part of the United Kingdom.

A record turnout of voters delivered a clear victory for the No campaign on Thursday, with 55% of Scottish voters rejecting independence and 45% backing it.

The pound later fell against the greenback, as many investors had already priced a No victory and sold sterling for profits.

The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.15% at 1.0953, AUD/USD down 0.61% at 0.8934 and NZD/USD down 0.22% at 0.8134.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.55% at 84.86.

Dollar gains as market preps for tighter U.S. monetary policy

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