US dollar charges to 7-month peak as Fed minutes show it is close to hiking rates

The dollar reached its highest level since March as minutes from the Federal Reserve’s September meeting showed several policy makers said a US rate increase was needed “relatively soon.”

The greenback rose against most major peers as the likelihood of a hike by year-end climbed to 68 per cent, from 60 per cent a month ago.

Fed Bank of New York President William Dudley said Wednesday inflation expectations are well-anchored, signalling added assurance that price gains will accelerate. A measure of the dollar’s relative strength suggests the currency may have risen too far, too fast.

“It signifies the consensus in the marketplace that yields are going up and the dollar rally is for real,” said Boris Schlossberg managing director of foreign-exchange strategy at BK Asset Management in New York. “A lot of the strength has been priced in, so I don’t think there will be much more reaction post the minutes.”

The greenback’s rally has pared the currency’s year-to-date loss to 2.3 per cent with traders becoming more confident it will strengthen through year-end.

The central bank minutes show policy makers moving toward additional tightening, which would rekindle divergence with monetary stimulus in Europe and Japan and bolster the relative allure of the US currency.

US Fed close to rate hike but doubts linger on inflation

Policy makers last month left the benchmark lending-rate target unchanged in a range of 0.25 per cent to 0.5 per cent for the sixth straight meeting, while a majority of the 17 participants forecast at least one hike this year. Fed Chair Janet Yellen is scheduled to deliver a speech in Boston on October 14 .

“The US has a rate-tightening bias and the rest of the world generally has a rate-easing bias,” said Philippe Bonnefoy, the founder of Switzerland-based hedge fund Eleuthera Capital AG. “The dollar is responding to that. The dollar is very comfortably bid and that bid will continue into year-end.”