The dollar rallied to a 14-month high after Federal Reserve officials raised their forecast for the target rate on overnight loans between banks at the end of 2015 while maintaining guidance to keep borrowing costs low.
The greenback rose to a six-year high versus the yen after Fed officials increased their median estimate for the federal funds rate to 1.375 percent at the end of next year, versus June’s forecast for 1.125 percent and virtually zero now. The pound gained before Scotland votes on independence tomorrow, and Australia’s dollar fell amid concern on whether China, the nation’s biggest trade partner, is trying to fuel growth.
“Getting from zero to 1.375 percent, you’re talking about some aggressive tightening that’s going to happen,” said Roger Bayston, senior vice president and director of fixed income at the Franklin Templeton fixed-income group in San Mateo, California, in a phone interview. “Any increase in the Fed outlook for the fed funds rate should certainly be positive for the dollar.”