100% probability of a December Fed rate increase?

November 23, 2016

100% probability of a December Fed rate increase?

The dollar surged to a more than 13-year peak on Wednesday, bolstered by upbeat U.S. economic data that showed the economy on track for steady growth and reinforced expectations of interest rate increases by the Federal Reserve next month and in 2017.

The greenback also posted sharp gains against the yen, rising to a more than seven-month high, and climbed versus the euro to its highest since early December.

A 0.4%rebound in U.S. durable goods orders last month after a decline in September as well as solid U.S. jobless claims that have been below 300,000 for 90 straight weeks boosted the multiple rate hike view.

Markets are now pricing in a nearly 100% probability of a December Fed rate increase, according to CME FedWatch.

In mid-morning New York trading, the dollar index (DXY), which tracks the greenback against six major currencies, rose 0.7% to 101.73, after earlier soaring to a 13-1/2 year peak of 101.78. It has climbed more than 3% since President-elect Donald Trump’s victory two weeks ago.

Investors are betting the dollar will be strengthened by Trump’s plans for fiscal stimulus, which may drive the Fed to raise rates faster than had been anticipated because of increased inflation.

Markets are now looking to the minutes of the Fed’s November policy meeting due later on Wednesday.

The euro is facing a host of political risks in the coming months, including an Italian constitutional referendum in less than two weeks and French and German elections next year, that are seen as likely to drive the currency lower.

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