Dollar hits highest since July after Fed official signals interest rate hike

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Dollar hits highest since July after Fed official signals interest rate hike

By Kevin Buckland TOKYO, December 20, Reuters - The US dollar hovered near the highest since July of last year against major peers on Monday after a Federal Reserve official signaled a first pandemic-era interest rate hike could come as early as March. After the Netherlands went into lock-up on Sunday, the euro fell with the British pound, as Britain's health minister refused to rule out further restrictions before Christmas due to the spread of the Omicron coronaviruses variant. The dollar index, which measures the currency against six major peers, stood at 96.629, not far from the peak of 96.938 reached last month. The World Health Organization said on Saturday that the number of Omicron cases is doubled in 1.5 to 3 days in areas of the world with community transmission, but noted that much remains unknown about the variant, including the severity of the illness it causes. On Friday, Fed Governor Chris Waller said an interest rate increase will likely be warranted shortly after the bank ends its bond purchases in March. Waller gave the dollar index a tailwind on Friday, but positioning is skewed long in USDs, so the prospect of position squaring into year-end is elevated, according to Chris Weston, head of research at Pepperstone in Melbourne. While central bank actions are the real issue, headlines on Omicron could be seen as the smoking gun for position squaring. The dollar has touched its highest since December 15 against the euro, sterling and the risk-sensitive Australian dollar, which tends to attract demand as a safe haven. The dollar slipped against the yen, but still near the middle of the trading range of the past three weeks. The ten-year U.S. Treasury yields, to which the dollar-yen pair is closely correlated, languished near a two-week low reached Friday. New York Fed president John Williams told CNBC that the Fed will gain optionality to raise rates in 2022 by ending bond purchases by March. Money markets have a 50-50 chance of a quarter point hike by March.