The US dollar hit fresh multi-month highs against a basket of major currencies on Wednesday after minutes from the Federal Reserve's July policy meeting signalled the potential for an earlier-than-expected hike in interest rates. The Fed has been surprised by how quickly the US labour market is healing but does not want to bring forward a planned rate hike until the recovery looks more convincing, the minutes showed.
The minutes showed many members of the Fed's policy-setting committee thought the characterisation that there was "significant" slack in the labour market "might have to change before long." "The message is hawkish," said Jose Wynne, global head of FX research at Barclays in New York. "The committee is just acknowledging that they are beginning to shift on their view on rates."
Investors are monitoring the Fed closely for hints of when the US central bank will tighten its easy money policies by raising interest rates from current rock-bottom levels, which could boost the dollar by driving investment flows into the United States. The dollar had gained prior to the release of the minutes on optimism surrounding US growth following stronger-than-expected US housing data on Tuesday.
The US dollar index, which measures the greenback against a basket of six major currencies, hit a fresh 11-month high of 82.277. The index was last up 0.47 percent at 82.267. The euro hit a fresh 11-1/2-month low of $1.3256 against the dollar and was last down 0.45 percent against the dollar at $1.3258. The dollar hit a fresh 4-1/2-month high against the Japanese yen of 103.84 yen and was last up 0.87 percent against the yen at 103.81 yen. The dollar hit a fresh seven-month high against the Swiss franc of 0.9138 franc, and was last up 0.46 percent against the franc at 0.9133 franc.
The British pound, which had earlier gained after minutes showed two of the Bank of England's policymakers unexpectedly voted earlier this month for an interest rate hike, was last down 0.15 percent against the dollar at $1.6590. The yield on benchmark 10-year US Treasury notes was last at 2.43 percent, up from 2.41 percent late Tuesday. Analysts looked ahead to a global central banking summit in Jackson Hole, Wyoming starting Thursday, where Fed Chair Janet Yellen is scheduled to deliver a speech on Friday. Analysts said they expected Yellen to show a dovish bias.
"I don't think she'll be quite as hawkish" as the minutes released Wednesday, said John Canally, economist and investment strategist at LPL Financial in Boston. He said Yellen would likely reiterate concerns about slack in the labour market and that more dovish comments could dampen the dollar's recent gains.
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