Dollar Rebounds After Hawkish Fed Seems Committed to June Rate Hike

The U.S. dollar staged a rebound on Thursday after a period of weakness, with sentiment boosted by a hawkish comment from Loretta Mester, president of the Federal Reserve Bank of Cleveland.

In a speech to members of the Economic Club of Minnesota, Mester said the Fed needs to keep raising interest rates this year if economic conditions continue on their current pace. Mester doesn’t hold a vote on monetary policy in 2017 as part of the Fed’s rotational panel.

Earlier, the dollar got a small boost from better-than-expected reports on jobless claims and manufacturing index from the Philly Fed.

Data on weekly jobless claims showed that the number Americans on unemployment fell mid-May to the lowest level since 1988, underscoring the strongest labor market in years. Manufacturing in the Philadelphia region showed unexpected strength in May, according to data released Thursday, a sign that the factory sector could be on solid ground.

The ICE Dollar Index DXY, +0.49% a measure of the currency against a basket of six major rivals, on Thursday was up 0.1% at 97.66. On Wednesday, the index fell to the lowest seen Nov. 8 Election Day.

“A small bump in the dollar has been mostly due to Mester’s comments that the Fed needs to raise rates more than one time this year,” said Alfonso Esparza, senior currency strategist at OANDA.

“However, the future path of the dollar depends whether the Trump administration is able to implement its pro-growth economic agenda and amid recent Russia-related investigation there is a big question mark about that,” Esparza said.

The U.S. dollar has been hit this week by escalating U.S. political concerns, with President Donald Trump besieged by White House drama, the most notable that he tried to influence a probe into links between his inner circle and Russia.

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza