LONDON: The dollar hovered near an 8-month peak against a basket of currencies on Tuesday, underpinned by expectations the U.S. Federal Reserve is on course to raise interest rates in December.
The dollar index stood at 99.668 .DXY, not too far from the 8-month high of 100.00 struck overnight.
The index had fallen to as low as 98.735 late last week in what was considered a corrective phase following days of strong gains fuelled by prospects of tighter U.S. monetary policy.
The euro was little changed at $1.0639 EUR= after touching a 7-month trough of $1.0592. The common currency had surged to as high as $1.0736 last week when the dollar came under some pressure.
“About 90 percent of economists expect the Fed to raise interest rates next month and based on Fed fund futures, investors have pretty much priced in the move, which is why we firmly believed that last week’s correction was technical and not fundamental,” wrote Kathy Lien, managing director of FX strategy for BK Asset Management.
Futures prices showed investors see a near-75 percent chance the Fed will hike rates next month, according to CME Group’s FedWatch.
“While it could be argued that the dollar sold off because the market had completely discounted a rate hike, with more than three weeks to go before the FOMC meeting, there’s still juice in the long dollar trade,” Lien added.
Caution should be used when piling further into the dollar as the Fed may take a measured approach to hiking rates, seeking not to rattle risk asset markets.
In a letter to U.S. consumer advocate Ralph Nader, Fed Chair Janet Yellen on Monday reiterated that the central bank should only gradually raise interest rates.
“With a rate hike seemingly priced in, market views are that the dollar could fall after the Fed delivers a hike in December,” said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.
