SINGAPORE: Comments from the Federal Reserve’s vice president that he expects a US interest rate hike this year pushed up the dollar against most emerging market currencies Monday after seeing big losses last week.
The greenback has seen heavy selling pressure since data at the beginning of the month showed jobs growth slowed in September, raising concerns about the recovery in the world’s number one economy.
And the release of minutes last week from the Fed’s latest policy meeting showed board members could delay because of worries about the global outlook.
Prospects a rise in borrowing costs would be put back to 2016 has helped fuel a global markets rally this month, with developing economy currencies big winners — Indonesia’s rupiah last week soared about eight percent and the Malaysian rupiah jumped almost seven percent.
However, on Sunday Fed vice chairman Stanley Fischer said the bank expected to stick to its plan to tighten monetary policy by the end of the year, although he added that the plans were an “expectation, not a commitment”.
He added that “both the timing of the first rate increase and any subsequent adjustments to the federal funds rate target will depend critically on future developments in the economy”.
While his comments, on the sidelines of the International Monetary Fund’s annual meeting in Lima, do not indicate the Fed will lift rates, they show policymakers continue to consider it.
The greenback rose more than one percent against the ringgit Monday, while it was up 0.10 percent against the rupiah and 0.08 percent against the Australian dollar. Against South Korea’s won it rose 0.15 percent and it gained 0.54 percent versus the Singapore dollar.
Emerging markets around the world have taken a hit this year on expectations the Fed will tighten borrowing costs, leading investors to withdraw cash back to the United States looking for higher, safer returns.
“It does seem as though they’re leaving the option open for a rate hike this year, but at the same time they’re not committing to it either,” Janu Chan, a senior economist in Sydney at St. George Bank, told Bloomberg News.
“Whatever happens, you’ll get quite a bit of volatility in currencies for the next few months.” Against major currencies the dollar edged down, however.
In midday trade the euro was at $1.1372 from $1.1359 in late New York Friday. The dollar also eased to 120.21 Japanese yen from 120.27 yen. The euro was at 136.69 yen against 136.62 yen.
“The prevailing market expectation is increasingly towards a no-hike this year, despite Fed’s view that a 2015 lift-off is still on the cards,” Bernard Aw, market strategist at IG Markets Singapore, told AFP.
And Nomura Securities forecast in a March lift-off in a market commentary.
Investors are keeping an eye on the release of key data this week from the United States and China that will give a better idea about the state of the world economy and the Fed’s
Japanese markets were closed Monday for a holiday.