Dollar Strengthens After Fed Meeting

By James Ramage 

        The dollar strengthened against the euro and the yen on Wednesday after the Federal Reserve signaled short-term interest rates could rise in the coming months, possibly as early as September.
        The Federal Open Market Committee painted a strong picture of the U.S. labor market at the conclusion of its two-day policy-setting meeting. The central bank said job gains have been solid, noted how unemployment had declined and upgraded its assessment of the slack in the labor market.
        Consequently, the dollar strengthened 0.7% against the euro at $1.0982, leaving the dollar on track for its strongest close in a week. The dollar increased 0.3% against the Japanese currency to 123.90 yen.
        Even though the Fed didn't send a clear signal for timing on a rate increase, keeping a September timeline open for the Fed's first interest-rate increase in more than nine years lifted the dollar. The Fed said it only needs to see some further improvement in the labor market to raise interest rates, said Ian Gordon, currency strategist at Bank of America Merrill Lynch.
        "All told, it's a modest positive for the dollar, because the bar for a September hike seems lower than the market was expecting," Mr. Gordon said.
        The dollar is on track for moderate gains going forward, but not as strong as some hope, said John Vail, chief global strategist at Tokyo-based Nikko Asset Management, which oversees $160 billion. Eurozone economies have shown signs of recovering, while Japanese data are improving slowly, he added.
        "And with no further policy easing by [the Bank of Japan or the European Central Bank], that will discourage people from getting too bullish on the dollar," Mr. Vail said. "The Fed wants the dollar to remain stable."
        By the end of 2015, Nikko Asset Management forecasts the dollar will buy 127 yen, while the euro will be valued at $1.07.
        The Fed also unanimously voted to hold its benchmark interest rate between 0% and 0.25%.
        The central bank has held short-term interest rates near zero since December 2008. Higher U.S. borrowing costs would increase returns on dollar-denominated investments, making the currency more attractive to yield-hungry investors.
        Write to James Ramage at james.ramage@wsj.com
        (END) Dow Jones Newswires

        July 29, 2015 15:55 ET (19:55 GMT)

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