Dollar index flirts with eight-month highs amid Fed hike bets

dollarTOKYO: The dollar was close to eight-month highs against a basket of currencies in Asian trade on Monday, buoyed by expectations that the US Federal Reserve will raise interest rates this year.

The dollar index, which tracks the greenback against a basket of six major counterparts, stood at 98.696, not far from its Friday high of 98.813, which was its loftiest peak since Feb. 3.

Against its Japanese rival, the dollar edged up 0.1 percent to 103.89 yen.

“We’ll probably see narrow range trading today, with an options barrier at 104 yen,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

Data released early on Monday showed Japan’s trade balance swung to a surplus of 498.3 billion yen ($4.8 billion), versus the median estimate of a 341.8 billion yen surplus.

On Friday, San Francisco Fed President John Williams said at a mortgage conference that “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 chief William Dudley and Fed’s vice chair Stanley Fischer, which prompted investors to price in an interest rate increase this year.

Interest rates futures imply about a 70 percent chance that the Fed will hike interest rates in December.

Speculators raised their bets on the US dollar for a fourth straight week, with net long positions hitting their highest since late January, Reuters calculations and data from the Commodity Futures Trading Commission showed on Friday.

The value of the dollar’s net long position rose to $18.44 billion in the week ended Oct. 18, from $14.72 billion the previous week.

The euro was slightly lower at $1.0878, inching back toward Friday’s low of $1.0857, its lowest since March 10.

“The main consideration seems to be the contrast between Fed officials like Fischer and Dudley who have been signaling a rate hike before the end of the year, while the ECB has arguably signaled a likely extension of its asset purchases,” wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

The ECB kept interest rates at historic lows last Thursday, and its President Mario Draghi kept the door open for more stimulus, effectively quashing any speculation that the bank was poised to taper its 1.7 trillion euro asset-buying program.

The next immediate target for the European currency is $1.08, and then $1.0710, with “an increasing chance of seeing a move closer to $1.05 before the end of the year,” Chandler said.