Dollar looks strong as Fed signals exit

The dollar(NYBOT:DXM14) advanced to the strongest level in two weeks against the euro after Federal Reserve policy makers signaled they’ll probably raise interest rates by the middle of next year.

The greenback rose versus most of 16 major peers after Fed policy makers raised interest-rate forecasts yesterday and Chair Janet Yellen said borrowing costs could start rising “around six months” after the Fed stops buying bonds. Brazil’s real climbed on bets the nation’s central bank will raise rates. U.S. two-year note yields rose after gaining the most yesterday since 2011, burnishing the appeal of dollar-denominated assets.

“The dollar is likely to trade more firmly,” said Daniel Katzive, a director and head of foreign-exchange strategy, North America, in New York at BNP Paribas SA. “The Federal Open Market Committee’s message this week has forced markets to reassess the likely timing of the Fed’s first rate hike, driving front-end yields up significantly in the dollar’s favor.”

The U.S. currency advanced 0.4 percent to $1.3777 per euro at 2:10 p.m. New York time. It touched $1.3749, the strongest level since March 6. The dollar appreciated 0.2 percent to 102.49 yen after jumping 0.9 percent yesterday. The yen strengthened 0.2 percent to 141.20 per euro.

Europe’s shared currency will fall to $1.31 by year-end, the lowest since July, according to the median estimate of analysts in a Bloomberg survey. The yen will weaken to 110 per dollar for the first time since August 2008, analysts forecast.

Brazilian Currency

Brazil’s real climbed as faster-than-forecast inflation fueled speculation the central bank will keep raising borrowing costs. The currency strengthened as much as 1.2 percent to 2.3217 per dollar before trading at 2.3243, up 1.1 percent.

The Getulio Vargas Foundation reported yesterday that Brazil’s producer, construction and consumer prices rose 1.41 percent in the 20 days starting Feb. 21, more than the 1.35 percent increase forecast by economists surveyed by Bloomberg.

Indonesia’s rupiah led losses among the dollar’s 31 major counterparts after the Fed’s outline on the timeframe to raise interest rates.

“We’re seeing a broad dollar rebound after the Federal Open Market Committee meeting, and the rupiah isn’t immune to that,” said Irene Cheung, Singapore-based foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. “The expectation for higher interest rates sooner than expected” was the big surprise.

The rupiah slumped 1.2 percent to 11,445 per dollar, the biggest loss since Nov. 11.

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