US Dollar Climbs Against Most Major Peers on Positive Interest Rates Outlook

The US dollar rose against a basket of its major peers on Tuesday as traders embraced more risk amid improved near future outlook for the US monetary policy. A number of speeches from officials of the Federal Reserve gave out strong signals for higher interest rates when the US central bank holds its next meeting on June 13.

Cleveland Federal Reserve President Loretta Mester said during a speech to the Chicago Council on Global Affairs yesterday that the Federal Open Market Committee should not fall behind on needed interest rate hikes. Mester, who is not a part of the committee, warned that delaying interest rate hikes for too long would increase the risk of economic recession. The US dollar positively moves in tandem with higher interest rates.

Mester’s recommendation for the near future path of the US monetary policy was supported by Kansas City Federal Reserve President Esther George earlier today. In her remarks at the University of California, Santa Barbara, George said that the Federal Reserve should continue increasing its interest rates despite recent weak results of car sales and economic growth. George believes that the central bank has enough room to tighten the US monetary policy as other economic factors, including consumer confidence and job gains, remain strong.

Boston Federal Reserve President Eric Rosengren echoed the same policy view today as he warned of rising inflationary pressures if the Federal Reserve did not adopt a faster pace for raising interest rates. A steeper move below a healthy unemployment rate, Rosengren warned, will force wages to grow faster, which would overheat the economy and result in higher inflation. Both Rosengren and George are voting members on the Federal Open Market Committee.

A report released earlier today from the Bureau of Labor Statistics revealed stronger conditions for the US labor market. The report stated that the number of job openings was 5.74 million in March from 5.68 million in February, which beat estimates of 5.67 million opened positions.

The Federal Open Market Committee closely watches labor data, among other economic indicators, to decide its monetary policy. The CME Group FedWatch Tool, which tracks prices of Fed fund futures to measure the probability of changes in US interest rates, shows a 87.7% chance of a rate hike when the committee meets in June.

EUR/USD traded at 1.0868 as of 19:20 GMT on Tuesday from 1.0863 at 18:35 GMT, a level last seen on April 28. EUR/USD started the day off at 1.0929. GBP/USD traded at 1.2928 after touching 1.2904 at 12:40 GMT, the pair’s lowest level since May 5. GBP/USD started trading today at 1.2940.

The Dollar Index, which tracks the performance of the US currency against its major peers, was at 99.66 as of 19:17 GMT today from 99.06 yesterday.

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