September 22, 2015 / 8:06 AM / 4 years ago

Dollar extends gains against euro on 2015 Fed rate hike bets

NEW YORK (Reuters) - The U.S. dollar hit a more than two-week high against the euro on Tuesday on continued belief that the Federal Reserve would hike rates this year while the European Central Bank could ease further.

A U.S. dollar bill is displayed in Toronto in this posed photo, March 26, 2008. REUTERS/Mark Blinch

The euro hit $1.11130, its lowest against the greenback since Sept. 4, following Fed officials’ recent comments indicating that the U.S. central bank was still on track to raise interest rates this year for the first time since 2006.

Analysts said traders expect the ECB, meanwhile, to ease policy further. One- and three-month euro/dollar risk reversals EUR1MRR= EUR3MRR=, which measure demand for options on a currency falling or rising, show their biggest bias in over seven weeks for a weaker euro.

“The looking forward to December as pretty much a launch date,” said Boris Schlossberg, managing director at BK Asset Management in New York, in reference to the Fed’s first rate hike.

Rate hikes are expected to boost the dollar by driving investment flows into the United States.

The dollar slipped against the Japanese yen, meanwhile, on concerns about global growth. Analysts said traders digested the Fed’s Sept. 17 policy statement and comments from Fed Chair Janet Yellen regarding worries about the global economy, which in turn helped the safe-haven yen gain while riskier emerging market currencies fell.

The U.S. dollar hit a record high against Brazil's real of 4.06 reals BRL=, and hit a nearly two-week high against the Mexican peso MXN= of 16.9 pesos.

“You’ve got the Fed warning about global weakness, and then...some (Fed) board members said we need to hike rates,” said Joseph Trevisani, chief market strategist at WorldWideMarkets in Woodcliff Lake, New Jersey. “Both things are bad for emerging markets and for the risk play.”

ECB President Mario Draghi will speak on Wednesday, while Fed Chair Yellen will speak on Thursday. Analysts said expectations that Draghi would hint at more stimulus kept the euro lower against the dollar.

The euro was last down 0.49 percent against the dollar at $1.11345 EUR=EBS. The dollar was last down 0.43 percent against the yen at 120.055 yen JPY=EBS. The dollar was last up 0.32 percent against the Swiss franc at 0.97480 franc CHF=EBS.

The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.37 percent at 96.250 .DXY. That was just under a nearly two-week high of 96.404.

On Wall Street, the benchmark S&P 500 .SPX stock index was last down 1.57 percent.

Reporting by Sam Forgione; additional reporting by Jemima Kelly in London; Editing by Meredith Mazzilli and Diane Craft

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