* Dollar index highest since Jan. 11
* Hawkish Fed comments raise March rate hike expectations
(Updates market action, changes dateline from LONDON)
By Karen Brettell
NEW YORK, March 2 The dollar gained to seven
week highs against a basket of currencies on Thursday, after
hawkish comments by a Federal Reserve official late on Wednesday
encouraged investors to expect a near-term interest rate hike.
Fed Governor Lael Brainard said an improving global economy
and a solid U.S. recovery mean it will be "appropriate soon" for
the Federal Reserve to raise rates, adding an important voice to
the chorus of officials signaling rates may rise as soon as
Those remarks come after New York Fed President William
Dudley and San Francisco Fed President John Williams rattled
investors on Tuesday with more aggressive than expected language
about raising rates.
"We’ve had this great run of data in the U.S. and the
expectation on a March rate move has gone up,” said Steven
Englander, global head of foreign exchange strategy at Citigroup
in New York.
Futures traders are now pricing in a 78 percent chance of a
Fed hike in March, up from 66 percent on Wednesday and from 35
percent on Tuesday, according to the CME Group’s FedWatch Tool.
Fed Chair Janet Yellen and Vice Chair Stanley Fischer are
both due to speak on Friday.
The dollar rose 0.38 percent against a basket of six major
currencies to 102.17, its highest since Jan. 11.
The greenback was last up 0.64 percent against the Japanese
yen at 114.43, the highest since Feb. 15 and gained 0.41
percent against the euro to $1.0503.
The dollar has strengthened even as many analysts see
limited further gains for the currency due to worries about the
impact of higher rates and a stronger dollar on global growth.
High yielding emerging market currencies including the South
Korean won, South African rand and Brazilian real
have also performed strongly this year despite the rise
in Treasury yields.
Ten-year U.S. bond yields have failed to hold
over 2.50 percent for any prolonged period despite weakening
dramatically since Donald Trump won the U.S. election in
A sustained move higher, however, could weigh on emerging
market currencies, said Citi’s Englander.
“If the numbers come in strong enough and the Fed comments
come in strong enough to break the range, the question would be
whether the optimism on emerging currencies would really be
justified,” he said.
(Editing by Bernadette Baum)