Hawkish Fed Officials Help U.S. Dollar Post Weekly Gain

Once again the U.S. Dollar took center stage in the Forex arena last week. The greenback strengthened against a basket of currencies along with increasing odds of a Fed rate hike at the central bank meeting on March 15.

The week began with the March U.S. Dollar Index trading relatively flat as investors continued to digest the previously released Fed minutes which suggested the economy may not be ready for a rate hike. However, the chances for a Fed rate hike began to increase gradually throughout the week, supported by hawkish statements from several high-ranking Fed officials.

At the start of the week, money market futures were pricing in about a 30 percent chance for a March rate hike. By the end of the week, the CME Group’s Fed Funds Indicator showed the chances had increased to over 80 percent.

Starting the ball rolling was New York Fed President William Dudley, a key voting member of the Federal Open Market Committee and among the most influential U.S. central bankers. He said that the case for tightening monetary policy “has become a lot more compelling”.

His comments were followed by John Williams, President of the San Francisco Fed. He said that a rate increase is very much on the table for serious consideration at the March meeting given the economy at full employment and accelerating inflation.

Also supporting an earlier than expected rate hike were hawkish comments from perpetual dove Fed Governor Lael Brainard. She said an improving global economy and a solid U.S. recovery mean it will be “appropriate soon” for the Federal Reserve to raise U.S. interest rates.

The week ended with Fed Chair Janet Yellen dropping a big hint Friday that an interest rate hike is likely to happen at the Fed meeting later this month.

“We currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect,” Yellen said at a speech in Chicago, according to prepared remarks.

March U.S. Dollar Index futures finished the week at 101.548, up 0.458 or +0.45%.

All major currencies lost ground to the U.S. Dollar except for the Euro, which posted a gain after a poll showed French far-right candidate Marine Le Pen’s chances in the county’s presidential election dimming. The EUR/USD closed the week at 1.0620, up 0.0061 or +0.58%.

The AUD/USD closed at .7595, down 0.0073 or -0.95%. Most of the loss was related to the stronger U.S. Dollar. In economic news, Australia’s fourth-quarter gross domestic product rose at a 2.4 percent annual pace, beating an expected gain of 1.9 percent.

Later in the week, Australia reported that its trade surplus had dramatically shrunk by almost two-thirds. According to the Bureau of Statistics, Australia exported around $1.3 billion worth of goods and services more than it imported in January.