Dollar pumps on Fed rate hike bets

The US dollar climbed to its highest in a week on Thursday (July 30th), after the Federal Reserve indicated it is moving closer to hiking interest rates this year.

After a two-day policy meeting, the US central bank left its benchmark short-term interest rate at near zero, but hinted that it is near to seeing enough job market strength to warrant increasing rates in September.

But, the Federal Open Market Committee (FOMC) also raised concerns about the low inflation environment, which is making it hesitant about the timing of a rate.

“Yesterday’s FOMC statement leaves the door ajar for the Fed to begin its normalisation of policy rates before year end, as the Fed clearly recognises the improvements to labour markets, while inflation and wages have remained subdued,” commented Rick Rieder, chief investment officer of Fundamental Fixed Income at BlackRock.

The dollar index, which measures the greenback against a basket of currencies, rose 0.4 per cent to its strongest in a week. The euro shed a cent against the buck and the yen was also down.

USD/CHF climbed to a three-month peak, despite upbeat economic data from Switzerland. Sterling was steady against the dollar, with GBP/USD holding above 1.56.

The dollar also rose against its Canadian counterpart as commodity currencies came under renewed selling pressure. The Norwegian krona and New Zealand dollar both slipped against the buck.

Dollar strength affected gold, with the metal dropping below $1,080/oz. Gold costs money to hold and yields nothing, making it less attractive when rates are expected to rise.

Elsewhere, Siemens led German stocks higher, with the firm rising three per cent and lifting the DAX up 0.4 per cent.

Royal Dutch Shell and BG Group were the biggest risers in London, both up four per cent by lunch as the FTSE 100 rose 0.8 per cent.