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01.09.2018 / 06:59

Hints of Interest Rate Hikes from Fed Members in 2018

The dollar rebounded Monday, charging higher after two Federal Reserve members hinted that at least three interest-rate hikes are on the table in 2018. Federal Reserve Bank of Cleveland President Loretta Mester in a Reuters interview on Friday said the strong U.S. economy and low unemployment level make the case for four rate hikes in 2018. In the same vein, San Francisco Fed President John Williams in another Reuters interview on Saturday called for three rate hikes this year, arguing that the already solid economy will get a boost from the Republican tax overhaul.

Higher interest rates usually lead to a stronger dollar as it becomes more attractive to invest in the U.S., and therefore sparks demand for the greenback. However, this dynamic did not work in 2017. The dollar weakened against major rivals despite three rate increases. In economic data, consumer borrowing rose in November by the largest monthly amount in 16 years, according to the Federal Reserve on Monday. Total consumer credit increased a solid $28 billion in November to a record seasonally adjusted $3.83 trillion, posting an annual growth rate of 8.8%. Economists had been expecting an $18 billion increase.

The ICE U.S. Dollar Index climbed 0.4% to 92.344, trading around its highest level since Dec. 29. The broader WSJ Dollar Index gained 0.3% to 85.90 on Monday. The euro fell to $1.966 late Monday from $1.2032 late Friday in New York. The shared currency stayed lower after data from Eurostat showed retail sales for the region rose 1.5% in November, meeting forecasts. The pound dropped to $1.3566 late Monday, from $1.3569 on Friday in New York. The dollar was little changed against the yen, however, buying ¥113.08 late Monday, compared with ¥113.05 on Friday.