The U.S. dollar extended its gains overnight, pushing stronger against all of its counterparts including to a 13-year high against the Euro. The greenback began to rally yesterday afternoon following the Federal Reserve’s decision to hike interest rates for the first time this year. The 25 basis point bump was widely expected. However, the “dot plots” showed that policy makers now expect to raise rates three times in 2017, up from two hikes in September. Of course, this time last year the “dot plots” pointed to four hikes in 2016, which did not happen. But the more hawkish tone from central bankers has been enough to boost the greenback. The U.S. Dollar Spot Index is up 1.5% from yesterday afternoon.
Overall, the U.S. dollar is trading at its strongest level since January 2003 versus the Euro and the best level since February versus the yen.
This morning’s economic docket was mostly positive but focus remains on yesterday’s Fed decision. Manufacturing in New York rose to 9.0, beating expectations of 4.0. Consumer prices held in line with expectations, rising only 0.2% month over month in November. Yearly CPI held steady at 1.7%, which should allow the Fed to raise rates further in the coming year. The Philly Fed also beat expectations, rising to 21.5, from an expected reading of 9.1.
The Euro fell to its lowest level sin January of 2003 against the U.S. dollar as a hawkish Federal Reserve highlighted the diverging monetary policies between the U.S. and Europe.
The Greek debt crisis has come back into view this week, also dragging down the common currency. Greece, once again, is having trouble meeting its fiscal targets it agreed upon when it received its last bailout. Greece, the IMF and EU creditors may have to renegotiate terms, again. The story is likely to sit on the back burner for the time being, but it would be prudent to keep an eye on new developments.
The British pound was also the victim on a strong dollar overnight, falling to a two week low against its American counterpart.
The sterling was also under pressure after the Bank of England voted unanimously to keep monetary policy unchanged. While the decision was widely expected, some analysts thought we may start to see a split between voters as inflationary pressures start to build in the U.K. Indeed, a report earlier this week showed that consumer-price inflation accelerated to 1.2% in November, the fastest pace since October 2014. The dovish vote comes against a back drop of an increasingly hawkish Fed.