US Dollar Climbs on Expectations of an Interest Rate Hike by Federal Reserve in March

The US dollar climbed against the euro and the British pound, as the market expected a higher probability of an interest rate hike by the Federal Reserve later this month. The stronger expectation comes after a number of officials from the central bank affirmed that economic growth is strong and healthy.

Federal Reserve’s Board of Governors Member Lael Brainard said yesterday that both global and US economies are improving, which signals that raising interest rates will be appropriate soon. Brainard, who is usually careful with her comments on monetary policy, made her remarks following comments from New York and San Francisco Federal Reserve Presidents William Dudley and John Williams.

Dudley said in an interview with CNN on Tuesday that the case for increasing interest rates has become a lot more compelling, adding that recent data releases continue to show a stable economic growth. He believes that since inflation is improving and the labor market is strong, the timing for the next interest rate hike should be sooner rather than later.

John Williams also supported this view, saying in a speech to the Santa Cruz Chamber of Commerce that the Federal Reserve should not delay raising rates. The probability of an interest rate hike from the Federal Open Market Committee when it meets on March 15 surged to 75.3% following the comments, according to the CME Group FedWatch tool. The tool tracks Fed Fund futures prices, which investors use to take bets on future policy of the Federal Reserve.

EUR/USD traded at 1.0518 as of 15:50 GMT on Thursday, from 1.0499 at 14:25, the pair’s lowest level since February 22. EUR/USD started the day at 1.0532. GBP/USD was at 1.2274, after touching 1.2259, a level last seen on January 20. The pair was at 1.2268 when the day started.

The Dollar Index, which tracks the performance of the US currency against its major peers, was at 102.02 as of 15:44 GMT, from 101.78 on Wednesday.

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