Fed interest rate rise strengthens dollar

Published: 10 Sep at 6 AM Tags: Euro, Dollar,

The dollar remains close to 14-month highs against its major competitors as it looks likely the Federal Reserve will announce an increase in interest rates sooner than expected. The news has hit shares in Asia and sent US bond yields higher. The rate hike announcement could come after the Feds policy meeting later this month.

On Tuesday the dollar index hit 84.519, close to the 84.753 peak seen in July 2013. The euro dipped to its lowest level in 14 months at $1.2860 on Tuesday before recovering slightly to $1.2933.

The greenback hit 106.475 yen, the highest it has been against the Japanese currency in six years. The possibility of higher interest rates in the US has also dented higher yielding currencies. The Australian dollar has dropped to a five-month low of $0.9168.

A strong dollar caused the price of gold to fall as low as $1,247.15 per ounce, a three-month trough. The yellow metal has since recovered to $1,255.19 per ounce. Many investors seem to have relied on the markets not being hit by the threat of a Fed rates rise because of geopolitical tensions including the trouble in Ukraine.

The impending rates increase has caused US bond yields to climb. The ten-year yield is currently at 2.509 per cent, a five-week high.