Dollar Surges as Bullard Adds to Fed Chorus for Higher-Rate Move

The dollar rallied the most in nearly a month Wednesday as Federal Reserve Bank of St. Louis President James Bullard joined a growing chorus of policy makers emphasizing that the central bank may raise interest rates as soon as April.

The U.S. currency gained for a fourth day versus the euro in New York as Bullard said officials should consider raising interest rates at their next meeting amid a broadly unchanged outlook for the U.S. economy. San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart made similar comments about the April gathering earlier this week.

Traders slashed expectations for U.S. interest rates last week after policy makers lowered the number of projected rate hikes to two from four for 2016, citing risks posed by weaker global growth and financial-market turmoil. Fed officials are this week prompting investors to rethink that shift by reiterating that April remains a possibility for a rate increase, bolstering the global allure of dollar-denominated assets.

“We’re seeing a little bit of a chorus forming this week with the Fed speakers, and they seem to be suggesting a more hawkish outlook for rates than the market is currently pricing in,” said Omer Esiner, chief market analyst at currency brokerage Commonwealth Foreign Exchange Inc. in Washington. “That’s what’s helping the dollar.”

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 peers, was at 1,198.78 as of 8 a.m. in Tokyo Thursday from 1,198.99, after adding 0.7 percent in New York, its biggest gain since Feb. 26. The greenback was little changed at $1.1182 per euro and 112.39 yen.

Fed Voices

The dollar slumped to a nine-month low last week after the Fed’s unexpectedly dovish policy statement following its March 15-16 meeting. Central-bank officials seem to shifting focus to strength in the economy and how that will influence the rate path.

“You get another strong jobs report, it looks like labor markets are improving, you could probably make a case for moving in April,” said St. Louis Fed President Bullard in a Bloomberg interview in New York Wednesday.

The so-called dot-plot projections for two rate hikes this year were “a pretty good setting,” Chicago Fed President Charles Evans said Tuesday.

Traders put the chances of an April move at 8 percent, according to futures data compiled by Bloomberg. The odds of a single 25-basis-point move by December were at 71 percent, climbing from 68 percent at the end of last week. The calculation assumes the effective fed funds rate will average 0.625 percent after the Fed’s next increase.

“The dollar has derived support from less-dovish Fed comments so far this week, signaling that the market is likely underestimating the potential for further hikes,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The strengthening labor market and firming inflation pressures point towards more tightening.”

--With assistance from Candice Zachariahs Eshe Nelson and Netty Ismail To contact the reporter on this story: Rachel Evans in New York at revans43@bloomberg.net. To contact the editors responsible for this story: Paul Cox at pcox16@bloomberg.net, Boris Korby, Michael Aneiro

By: Rachel Evans

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