There are signs that the US might raise interest rates in March and the dollar is rising sharply
Dollar rises on hints of March interest rate hike from US Federal Reserve.
The US dollar on Tuesday continued to recover from a recent bout of selling, supported by comments from a US Federal Reserve official suggesting that the Bank has not ruled out an interest rate hike as soon as next month.
Federal Reserve Bank of Philadelphia President Patrick Harker said in a speech on Monday that March “is on the table” for possible action and that it depends on economic data between now and then.
He said that last week’s jobs report, coupled with strong growth figures, was an encouraging sign of the economy’s resilience.
According to official data published on Friday, total US non-farm payrolls rose by 227,000 in January, much higher than the 175,000 expected by economists.
The unemployment rate, however, ticked up to 4.8 per cent, from 4.7 per cent previously due to an increase in the participation rate to 62.9 per cent from 62.7 per cent the previous month.
The Fed is due to hold its next interest rate meeting 14-15 of March and Mr Harker is the second official of the bank to indicate in recent weeks that a rate increase could be announced then.
John Williams, his colleague from San Francisco said last week that he thinks it is possible that a move is announced at the March meeting, according to Bloomberg.
Higher interest tend to support a country’s currency and in morning trading in London the dollar was trading up against both the euro and the pound having last week hit its lowest level against a basket of currencies since mid-November.
“Traders in the City seem to have woken up to the prospect of the Fed tightening interest rates quicker than they’d thought,” said Neil Wilson, a senior market analyst at ETX Capital. He said that Mr Harker’s comments had “thrown the cat among the doves a bit as the last FOMC meeting suggested the Fed was not likely to raise rates until the summer”.
Sterling was recently trading around 0.8 per cent lower on the day against the buck at around $1.237. The euro was around the same amount lower against the dollar, at about $1.067, according to Reuters.
