The U.S. dollar rebounded from nearly eight-week lows against the euro and Swiss franc on Friday a day after a top Federal Reserve official joined a growing chorus signaling support for a U.S. interest rate hike in coming months.
San Francisco Fed President John Williams on Thursday said that, if the U.S. central bank waited too long to raise rates, it could be costly for the economy and that a possible rate hike in September should be in play.
Those comments added to statements perceived as hawkish from New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart in recent days. They also came after an essay Williams published this week calling for a recalibration of the Fed’s long-term goals, which had fueled some speculation that the Fed would not raise rates this year.
“Williams’s yesterday reversed people’s interpretation of his comments earlier in the week,” said Ian Gordon, FX strategist at Bank of America Merrill Lynch in New York. “It increased the implied probability of hikes.”
While the dollar index, which measures the greenback against a basket of six major rivals, was last up 0.37 percent at 94.508 .DXY, it remained on track for a 1.3 percent decline for the week given the earlier skepticism over a 2016 Fed rate hike. That would mark its second straight week of losses.
Federal funds futures on Friday suggested traders saw a 53.5 percent chance of a Fed rate hike this year, according to CME Group’s FedWatch program. Investors were also awaiting the Fed’s annual conference in Jackson Hole, Wyoming next week.
Analysts also said traders were likely taking profits on short bets against the dollar on nervousness about having bets against the U.S. currency ahead of the weekend.
“The dollar had taken a pretty big tumble in the first part of this week, so people had gotten short the dollar and now they’re just buying back,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.
The euro was last down 0.3 percent against the dollar at $1.1319 EUR=, below a nearly eight-week high of $1.1365 touched Thursday. The dollar was up 0.6 percent against the Swiss franc at 0.9599 franc CHF= after hitting a low of 0.9532 Thursday.
Against the yen, the dollar was last up 0.36 percent at 100.22 yen JPY=, but was set for its fourth straight week of losses against the yen.