The US dollar climbed to the highest level since May 30 against the euro on Tuesday following a stream of hawkish comments from US Federal Reserve officials yesterday and today. Two members of the Federal Open Market Committee offered an improved outlook for tighter monetary policy in the United States earlier today, while a third member is expected to speak later in the day.
Federal Reserve Vice Chairman Stanley Fischer, who contributes to US monetary policy decisions, warned of keeping interest rates low for a longer period in a conference in Amsterdam on Tuesday morning. Fischer stated that home prices are high and continue to rise in several countries due to an extended period of low interest rates, which may present a risk of financial crisis similar in nature to the one of 2008.
Fischer added that the United States and other nations around the world have a lot more to do to avoid such risks. This includes creating clearer mortgage rules, offering easier methods to avoid foreclosures, and stress testing banks on their ability to stand sudden declines in house prices. Fischer’s speech appeared to strongly support further tightening of the US monetary policy, which pushed the dollar higher.
Eric Rosengren, the president of the Federal Reserve Bank of Boston and a voting member in the US monetary policy committee, echoed Fischer’s concerns in a speech at the same conference. Rosengren called on central bankers around the world to take into account risks to financial stability that are imposed by low interest rates in the United States and elsewhere. Rosengren added that central banks are less capable of adjusting for sudden financial shocks when interest rates are already low.
These remarks came a single day after Federal Reserve Bank of New York President William Dudley recommended further tightening of the US monetary policy amid favorable consumer prices and labor gains. The president of the Federal Reserve Bank of Dallas Robert Kaplan will speak at 19:00 GMT today and may offer more insight on US interest rates in the near future.
EUR/USD traded at 1.1122 as of 17:40 GMT on Tuesday from 1.1119 at 16:00 GMT, the pair’s lowest level since May 30. EUR/USD began trading today at 1.1145. GBP/USD was at 1.2620 after reaching down to 1.2606 at 15:10 GMT, a level last seen on April 18. GBP/USD started the day at 1.2727.
The Dollar Index, which tracks the performance of the US currency against its major peers, was at 97.83 as of 17:35 GMT from 97.54 yesterday.
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