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REFILE-FOREX-First U.S. rate rise in decade sends dollar to 2-week high
December 17, 2015 / 1:20 PM / in 2 years

REFILE-FOREX-First U.S. rate rise in decade sends dollar to 2-week high

(Changes day in lead to Thursday, from Friday)

* Dollar rallies after first Fed hike since 2006

* Norwegian crown surges after rates left unchanged

* Yuan falls after PBOC sets midpoint lower

By Jemima Kelly

LONDON, Dec 17 (Reuters) - The dollar hit a two-week high against a basket of major rivals on Thursday after the U.S. Federal Reserve raised interest rates for the first time in almost a decade and signalled four more hikes are to come next year.

Elsewhere, the Norwegian crown surged more than 1 percent against the euro after Norway’s central bank declined to cut interest rates further despite a slide in oil prices that is dampening growth.

China’s yuan fell to its lowest in more than four months in offshore trading, down 0.6 percent against the dollar, after the central bank guided the Chinese currency lower. Earlier, the onshore rate hit a 4-1/2-year low, falling for a 10th day in a row - its worst run on record.

In a widely anticipated move, the Fed increased its benchmark interest rates by a quarter of a percentage point on Wednesday.

Though Fed Chair Janet Yellen said tightening would be gradual, some market watchers sensed a hawkish tone in the unanimous support of Fed officials, and the fact that their median projected target rate for 2016 remained at 1.375 percent. This implies four quarter-point hikes next year.

The euro fell to as low as $1.0832 before recovering to $1.0857, still down half a percent on the day. The yen fell to 122.645 against the dollar but by 1255 GMT was trading at 122.45 yen, down just 0.2 percent on the day.

Those gains took the dollar basket to 98.955, its highest since Dec. 3, and its rise since the Fed decision to almost 1 percent. But HSBC currency strategist Dominic Bunning, in London, said the reaction had been pretty muted.

“The overall sense is that (Fed hikes) are going to be very gradual, and that fosters a relatively positive atmosphere for some EM currencies for example,” he said. “It plays into our view that the dollar won’t strengthen much in the medium term.”

Commerzbank currency strategist Thulan Nguyen, in Frankfurt, said the main reason the dollar had gained was that many investors had expected a more dovish Fed statement, but that the post-Fed rally was already beginning to fade.

“I would be cautious in interpreting too much into (the hawkish tilt to the statement), particularly as for exchange rates what was relevant in what Yellen said was that apart from lower oil prices, the appreciation of the U.S. dollar was dampening inflation at the moment.”

“That implies that they do not expect a sharp appreciation of the dollar. That confirms my view that we will not see a strong appreciation of the dollar, because if we do see it, the Fed will react to that by postponing rate hikes.” (Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Gareth Jones)

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