FOREX-Dollar firmer as Fed maintains hawkish guidance, yen near 5-week low

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* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

By Vatsal Srivastava

SINGAPORE, Nov 9 (Reuters) - The dollar gained against itsmajor peers on Friday as the U.S. Federal Reserve kept interestrates steady but reaffirmed its monetary tightening stance,setting the stage for a rate hike in December.

In foreign exchange markets, investor focus is now shiftingback to the divergence between the monetary policies of theUnited States and other major economies, such a Japan whereinterest rates are seen staying extremely low. The yen, as aresult, remains near a five-week low against the dollar.

The dollar index .DXY , a gauge of its performance againstsix major peers traded at 96.63 on Friday, after clocking a gainof 0.66 percent on Thursday.

"The Fed looks set to raise rated in December. They havebeen largely unfazed by the equity market correction inOctober," said Ray Attrill, head of currency strategy at NAB.

Attrill added that the dollar strength also follows a weakeuro and a jittery sterling over the last few trading sessions.

The Fed has raised its key policy rate three times thisyear, and the market expects another rate hike in December onthe back of a robust U.S. economy, rising inflation and solidjobs growth. urn:newsml:reuters.com:*:nTLA8MEE46

According to the CME group's FedWatch tool, the likelihoodof the Fed raising rates by another 25 basis points in Decemberis 75 percent.

The dollar has gained 2.4 percent versus the yen over thelast 10 trading sessions due to the diverging monetary policiesof the Fed and the Bank of Japan.

While the Fed is on track to raise interest rates, the BOJis expected to keep its ultra loose monetary policy due to lowgrowth and inflation.

The widening interest rate differential between U.S. andJapanese bonds has made the dollar a more attractive bet thanthe yen, which is often a funding currency for carry trades.

Meanwhile, the euro EUR= traded at $1.1366 on Friday,relatively unchanged in early Asian trade. The single currencyfell 0.54 percent on Thursday as traders reacted to negativenews out of Europe.

The European Commission forecast on Thursday that theItalian economy would grow more slowly in the next two yearsthan Rome thinks, making government budget deficits much higherthan assumed by Italy. urn:newsml:reuters.com:*:nB5N1SU01F

The standoff between the EU and Rome over Italy's budgetdeficit and concerns over Europe's slowing economic growth havedragged the euro which has fallen 4.2 percent versus the dollarover the last six months.

The British pound GBP= changed hands at $1.3062 on Friday,trading marginally higher versus the dollar. The sterling hasgained 2.3 percent against the dollar in November.

The pound has benefited from growing investors expectationsthat Britain is close to reaching a deal with the European Unionless than five months before it is due to exit the bloc.

The Australian dollar AUD= gained 0.1 percent to trade at$0.7262. The Aussie dollar has rallied more than 3.3 percentsince it hit a more than a two-year low of $70.18 on Oct. 26.

(Reporting by Vatsal Srivastava; Editing by Sam Holmes) ((vatsal.srivastava@thomsonreuters.com; +65 68703571; ReutersMessaging: vatsal.srivastava.thomsonreuters.com@reuters.net))

This article appears in: Politics , Stocks , World Markets , Economy
Referenced Symbols: EUR

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