LONDON: The dollar hit a nine-month high against a basket of currencies on Monday, buoyed by expectations that the US Federal Reserve will raise interest rates this year and by a receding chance of Donald Trump becoming US president.
Having just recorded three straight weeks of gains, the dollar index, which tracks the greenback against a basket of six major counterparts, reached as high as 98.846 in early trade on Monday, its loftiest peak since Feb 3.
On Friday, San Francisco Fed president John Williams said, “it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later”.
His comments followed recent hawkish talk from central bank officials including New York Fed president William Dudley and Fed vice-chair Stanley Fischer, which has prompted investors to price in around a 70% chance the Fed will hike interest rates in December, reported CME FedWatch.
Analysts said the dollar had also been given a boost by recent opinion polling ahead of the Nov 8 US presidential election, which favours Democratic candidate Hillary Clinton over Republican Donald Trump.
“The dollar’s firm — it’s not going to fall sharply in the near term. And I would suspect if we get even more certainty on the US elections it will strengthen a little bit further,” said BMO Capital Markets currency strategist Stephen Gallo, in London. “I suspect the Fed may not go if Trump wins.”
Options positions on the US stock market suggested investors are pricing in a Clinton victory. Positioning data on options tied to the benchmark S&P 500 index showed little pickup in demand for contracts that would offer investors downside insurance in the event that stock prices take a major hit right after the election.
Dramatic news about either candidate could lead to foreign exchange market swings, said Shinichi Kashiwagi, head of market sales for Japan at National Australia Bank in Tokyo. “We need to wait until the US GDP report on Friday” for the next cue on the dollar direction, he said.
Disappointing growth figures might lead investors to pare their expectations for a December hike.
Speculators raised their bets on the dollar for a fourth straight week as of Oct 18, with net long positions hitting their highest since late January, showed Reuters calculations and data from the Commodity Futures Trading Commission.
The European Central Bank kept interest rates at historic lows last Thursday, remaining open to more stimulus.