US dollar reverses losses after top Fed official calls June rate hike 'a real option'

Federal Reserve Bank of Atlanta President Dennis Lockhart.
Federal Reserve Bank of Atlanta President Dennis Lockhart. PHOTO: BLOOMBERG

NEW YORK (BLOOMBERG) - The US dollar rose from a one-year low as Federal Reserve Bank of Atlanta President Dennis Lockhart called a June interest-rate increase "a real option," helping stall the greenback's slide.

The US currency climbed the most since December as Mr Lockhart said two rate rises this year are possible, after the US central bank opted to hold monetary policy steady last month. Cleveland Fed President Loretta Mester and San Francisco Fed President John Williams also spoke on Tuesday (May 3).

A precipitous decline in the US dollar looks to be running out of steam. A measure of dollar momentum is near a level that signals to some analysts it has fallen too far, too fast and is set to reverse direction. The US employment report on May 6 may also support Fed plans to raise rates.

"We've come a long way quite quickly and there was a sense that we were a little bit stretched," said Daragh Maher, New- York-based head of US currency strategy at HSBC Holdings. "The Fed has tried to stress throughout that the door remains open to June. We've still got data to come in terms of the employment report, but I don't think they want to rule it out."

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, was at 1,165.04 as of 7:14 am in Singapore on Wednesday (May 4). It rose 0.7 per cent to 1,164.70 on Tuesday, when it touched the lowest level on an intraday basis since May 2015.

The US currency rose 0.1 per cent to 106.70 yen on Wednesday and declined 0.1 per cent to US$1.1503 per euro.

The dollar has struggled in recent months as traders scaled back expectations for the Fed to raise rates. Futures contracts show just a 12 per cent likelihood of an increase in June, and a 55 per cent probability for December. The calculation assumes the effective fed funds rate will average 0.625 per cent after the central bank's next increase.

Hedge funds and other large speculators added bets on dollar weakness last week after turning net bearish on the currency versus eight peers for the first time since 2014 a week earlier.

The Fed has noted strength in the labour market even as it downgraded its assessment of US growth when it met last month. Analysts expect a payrolls report due Friday to show employers added 200,000 jobs or more for a third consecutive month in April.

"People do pay attention to what Fed speakers are saying because obviously June is going to be a very big meeting," said Sireen Harajli, a foreign-exchange strategist at Mizuho Bank in New York. That said, "I'm not so confident that we're moving into a situation where the dollar will begin to strengthen all of a sudden. There's still a fair level of uncertainty regarding what the Fed's going to do."