ECB’s Action Likely to Encourage Action from Fed

Dollar bulls say Europe’s 1.1 trillion euro ($1.24 trillion) bond-buying plan will bring the Federal Reserve a step closer to raising interest rates before the year’s out.

By pumping cash into global markets, the European Central Bank may clear the way for the U.S. to tighten its own money supply without stoking volatility, according to Citigroup Inc. and Bank of America Corp. As Fed officials start a two-day policy meeting, the greenback is extending a rally that’s taken it to a more than decade-high versus a basket of its peers even as bond investors express less conviction about the timing of an U.S. central bank’s first rate increase since 2006.

“We’ve been expecting dollar strength, and it’s coming quicker than we thought,” Steven Englander, the head of Group of 10 foreign-exchange strategy at Citigroup in New York, said by phone on Jan. 23. Fed officials “may feel they actually have to advance the first tightening rather than put it off.”

Bloomberg

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