The dollar edged higher on Wednesday as the outlook for the U.S. interest rate hike turned positive following the hawkish comments from the Central Bank officials.
The U.S. currency regained its strength after hitting a 7-week low against the yen as the positive views of the Federal Reserve officials boosted the outlook for the greenback.
Since late last week, the dollar had been on the defensive against other major currencies as weak economic indicators lowered the anticipation for a near-term rate increase.
But it quickly recovered on Wednesday, following the hawkish comments expressed by the Atlanta Fed President Dennis Lockhart, who mentioned that two rate increases this year was a possibility, and by New York President William Dudley, who said there is a likelihood that the Central Bank could boost interest rates as soon as September.
“Hawkish views from Fed officials can prompt short covering in the dollar, but they are not sufficient enough to kick off an uptrend,” said a forex analyst at IG Securities in Tokyo.
“This is because the markets now expect only one or two rate hikes this year, when at the end of 2015 they had expected up to four,” he further added, as he believes that the negative economic developments in Europe and Britain following the Brexit affected the decision of the Central Bank and cancelling out any lift from positive U.S indicators.
The dollar index, which measures the greenbacks strength against other major currencies, was 0.3 percent higher at 95.025, recovering from its seven-week lows of 94.426.
The currency markets will await new hints from comments expected from the St. Louis Fed President James Bullard and the release of the Fed’s July meeting minutes due today at 2 pm Eastern Time.
“I would not rule out September. If the meeting were today, I think the economic data would justify a serious discussion” of whether to increase rates now, the Atlanta Fed President told reporters after his speech on Tuesday.
Gold Edges Lower on Positive Rate Hike Outlook
The price of safe-haven gold weakened on Wednesday, reversing its gains in the previous session as investors await fresh clues from the minutes of the Fed’s July Policy meeting due to be released later in the day.
It pushed the price of the dollar higher, which was up at 101.100 yen on Wednesday, 0.8 percent higher compared to its previous session’s price of 99.550.
The precious metal is very sensitive to the movement of the U.S. rates, as higher interest rates increases the “opportunity cost” of owning gold, which yields no income and costs money to hold.
Spot gold edged lower at $1,343.78 an ounce.
U.S Gold fell 0.67% or $9.10 to trade at $1,347.80 per ounce by 6:41 am ET.
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