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Dollar defies Fed hawks, bullish bets drop

Sydney - Investors are the least confident in a year that the dollar will strengthen, shrugging off comments from Federal Reserve officials that the central bank is still poised to raise interest rates this year.

A gauge of the US currency touched a three-week low even after Fed Vice chairperson Stanley Fischer became the latest policy maker to back the case for a year-end increase in the benchmark, joining William C. Dudley, Dennis Lockhart and John Williams.

Hedge funds and other money managers last week cut net bullish bets on the dollar to the least since September 2014, helping drive the greenback to the biggest weekly decline since June.

“It does seem as though they’re leaving the option open for a rate hike this year, but at the same time they’re not committing to it either,” said Janu Chan, a senior economist in Sydney at St. George Bank, which is a division of Westpac Banking.

“Whatever happens, you’ll get quite a bit of volatility in currencies for the next few months.”

The Bloomberg Dollar Spot Index, which measures the currency against 10 major counterparts, slipped 0.2% to 1 190.33 as of 12:31, after touching 1 189.60, the lowest since September 18.

The US currency weakened 0.2% to $1.1381 per euro and depreciated 0.1% to ¥120.13. Japanese financial markets were shut on Monday for a holiday.

The outlook for swings in global foreign-exchange rates as measured by a JPMorgan Chase gauge has averaged 10.2% this year, up from 7.3% in 2014.

Wagers Reduced

Hedge funds and other money managers cut net bullish bets on the dollar to the least since September 2014 in the week through October 6, according to data from the Commodity Futures Trading Commission in Washington. Wagers that the currency will rise outnumbered those betting it will weaken, by 196 975 contracts.

While the previous two payroll reports have been “disappointing,” the job market’s prospects for further improvement “look good overall,” Fischer said Sunday in Lima, where he attended the annual meeting of the International Monetary Fund.

The economy may be strong enough to merit a rate increase by year-end, though policy makers are monitoring slower domestic job growth and international developments in deciding the precise timing, he said.

Fed Bank of Atlanta President Lockhart said last week he’s less confident in the US economy, though he expects the central bank to raise rates in 2015.

Traders put the probability the Fed will act by December at 39%, down from 66% on June 30. The calculations are based on the assumption the effective fed funds rate will average 0.375% after the first increase, versus the current target range of zero to 0.25%.

“There is a bit of a disconnect and the market is telling the Fed that they don’t really believe there will be rate hike this year, which explains why the dollar is slightly weaker from last week,” said Bernard Aw, a strategist at IG Asia Pte in Singapore.

“Because of some confidence though among the Fed officials that they could still see a rate hike, I don’t see a substantial dip in the greenback against other major currencies.”

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