The dollar strengthened versus its rivals after Federal Reserve policy makers made it clear that a September interest-rate increase was not out of the question in an new statement published after their two-day July meeting came to a close.
Fed policy makers updated the statement to say that they need only see “some” additional improvement within the labor market before they would be willing to increase the central bank’s primary interest rate. This means that the nonfarm payrolls (NFP) reports for the months of July and August are likely to determine whether or not a rate increase takes place in September..
The latest statement suggested that the Federal Reserve’s rate committee feels that inflation will gradually move towards the target goal of just under 2%, even though price pressure continues to be soft. The U.S. dollar started to fall in value soon after the statement was publicized, but then quickly moved in a positive direction. The initial weakness was brought on by the fact that there was no explicit suggestion that a rate increase would be taking place in September.
Even so, the new statement does suggest that there is no reason to assume that a September increase will not take place. Any indication that the Federal Reserve will soon boost interest rates for the first time in nearly ten years tends to provide support the U.S. dollar. This is because higher U.S. interest rates would render the dollar a more appealing investment in opposition to many other currencies.
The dollar last traded at ¥123.92, up from ¥123.57. The euro lost ground versus the USD, last trading at $1.1008, down from $1.1060. The dollar moved very little versus the pound following the release of the statement, with the GBP trading at around $1.5612. The ICE U.S. Dollar Index has climbed 0.1% at 96.8470 at last check.