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The dollar is poised for its biggest monthly gain since March as the Federal Reserve took a step closer to raising interest rates this year.
The US currency strengthened against all except three of its 16 major peers after policy makers turned more bullish on employment compared with their meeting in June, while stopping short of providing more specific timing for liftoff. The Fed made a one-word change to its language on conditions that would justify a rate increase: It needs to see "some further improvement in the labor market," adding the modifier "some."
"We got a broadly US dollar-positive outcome from the meeting," said Raiko Shareef, a markets strategist at Bank of New Zealand Ltd in Wellington. The addition of the word "some" to the Fed statement "will make the two following employment reports we get more important, and strong results would support our view of a September liftoff."The Bloomberg Dollar Spot Index, which tracks the currency versus 10 of its major peers, has advanced 2.3 per cent this month. It rose 0.1 per cent to 1,208.45 as of 6:49 am in London. It reached the highest on record dating to 2004 in March at 1,222.94.
Currency forecasters have been ratcheting back expectations for gains in the dollar amid concern about persistent weakness in the economy that few had predicted. In April, analysts were calling for the ICE US Dollar Index to reach a 12-year high of 100.70 at year-end. Now they see it finishing 2015 at 98.60, according to the median estimate in a survey.
"The trend will be for a stronger dollar, but probably not at the pace we've seen," Richard Clarida, global strategic adviser at Pacific Investment Management Co, which oversees $1.52 trillion, said Wednesday on the sidelines of the 2015 UBS CIO Global Forum in New York. The dollar gained 0.1 per cent to $1.0976 per euro, and strengthened 0.1 per cent to 124.07 yen.
New Zealand's dollar was the worst performer versus the greenback among Group-of-10 currencies. The kiwi dropped 0.5 per cent to 66.36 US cents, adding to a 0.3 per cent decline on Wednesday.
The Aussie dollar rose 0.3 per cent to 73.15 US cents after Reserve Bank of Australia Governor Glenn Stevens said China's two-way portfolio flows following liberalization could be $400 billion a year. The Asian nation is Australia's biggest trading partner.
Data due Thursday are forecast to show the world's largest economy expanded at a 2.5 per cent annual rate in the second quarter, according to the median estimate of economists in a Bloomberg survey.
Fed Chair Janet Yellen said earlier this month she expects the central bank to raise its benchmark rate this year, and that waiting too long to raise rates holds risks for the US economy, as does tightening too quickly.
Traders are pricing in a 44 percent probability that the Fed raises rates at or before the September meeting, based on the assumption that the effective fed funds rate will average 0.375 percent following the increase.
"The conclusion the market has taken from the FOMC is that it is one step closer to hiking rates, somewhat increasing the odds of rate hikes in the remaining meetings this year," said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Singapore. "The U.S. dollar appears set to strengthen until data points, particular for the labor market, stall."
