US dollar slips but poised for winning week on March Fed rate hike bets

-A +A

TOKYO (March 3): The US dollar slipped on Friday but remained on track for a solid weekly gain on growing expectations the US Federal Reserve will raise interest rates at its mid-March meeting, which led to a rise in US Treasury yields.

The dollar index, which gauges the greenback against a basket of six major currencies, was down 0.2% at 102.020 but not far from the previous session's high of 102.260, its loftiest peak since Jan 11. For the week, it was up 0.9%.

Against the yen, the US dollar fell 0.3% on the day to 114.11 after scaling a peak of 114.595 in the previous session, its highest since Feb 15. The US dollar was up nearly 2% for the week.

"There were some investors who weren't positioned for the possibility of a rate increase this month, and the US dollar is benefiting as they adjust their expectations," said Mitsuo Imaizumi, the Tokyo-based chief foreign-exchange strategist for Daiwa Securities.

Comments this week from New York Fed President William Dudley as well as San Francisco Fed President John Williams buoyed US dollar bulls, and prompted more investors to increase their bets on a rate increase as early as this month.

Fed funds futures on Thursday implied traders saw a 79.7% probability of a Fed rate hike at its March 14-15 policy meeting, up from 66.4% on Wednesday, according to data from CME Group's FedWatch program. That helped push up yields on US two-year notes, which are considered most vulnerable to Fed rate hikes, to their highest since August 2009.

Fed Chair Janet Yellen as well as Vice Chair Stanley Fischer are slated to speak later on Friday, and could reinforce the hawkish message.

"We also changed our own expectations for a rate increase to March, from June," said Harumi Taguchi, principal economist at IHS Markit in Tokyo.

"But still, we don't know how US policy will continue, and there are also political risks, which could possibly change the trend back to a stronger yen," she said.

The euro edged up 0.1% to US$1.0520, after dipping as low as US$1.0495 overnight, within a tick of its lowest level since Jan 11. It was down 0.4% for the week.

The Australian dollar licked its wounds, down 0.2% on the day at US$0.7559. It skidded as low as US$0.7543, the weakest since Jan 31, as it came under pressure from slumping oil prices and the broadly stronger US currency.

The Aussie was down 1.4% for the week, set for its worst weekly performance since mid-December.

Sterling was steady on the day at US$1.2267 after plumbing a low of US$1.2243 on Thursday, its nadir since Jan 17.