The dollar climbed for a fifth consecutive day against a basket of major currencies on Thursday, putting it on track for its best run of gains in almost a year, as investors moved to price in the possibility of two US rate hikes this year. St Louis Fed President James Bullard was on Wednesday just the latest Federal Reserve official to suggest that a rate hike could come as soon as next month, following similarly hawkish comments from other US policymakers earlier in the week.
Philadelphia Fed President Patrick Harker said on Tuesday he would prefer at least three hikes before year-end. Although the Fed's so-called dots, which reflect the interest rate forecasts of the central bank's policymakers, currently show interest rates should increase twice this year, investors had until the start of the week only been expecting one hike. But they have now started pricing in a second.
The greenback hit an eight-day high of 96.364 against a basket of major currencies on Thursday, with its fifth day of gains giving the dollar its best run since early April 2015. It has gained around 1.3 percent so far this week, its second-best performance in four months. "Some of the Fed governors have been ... giving a little bit more of a hawkish stance than the market was prepared for, and so we're adjusting ever so slightly," said HSBC's head of currency research, David Bloom, in London.
"Plus some of the carry currencies had a blistering run and you always get a pause," he added, referring to higher-yielding currencies like the Australian and Canadian dollars which had rallied since the start of the year but have fallen alongside crude oil prices in the past week. Societe Generale strategist Alvin Tan, in London, added that gains against sterling, which has fallen this week as the odds of a British exit from the EU have narrowed, had also boosted the dollar.
US data due at 1230 GMT, including durable goods orders and jobless claims data, could back up this week's relatively optimistic views on the economy from Fed officials. The euro hit an eight-day low of $1.1144, having lost 0.9 percent so far this week, with attacks in Brussels on Tuesday bruising sentiment. "The euro may be slow to shrug off the impact of the terror attack, given potential for investors to price in a higher political risk premium associated with the ongoing drift towards the wings and away from centrist parties," wrote Todd Elmer, Citi's Asian head of G10 FX strategy. The blasts in Belgium were seen as exacerbating the possibility of Britain leaving the European Union, further undermining the euro, as well as the pound.
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