It looks like a Fed interest rate hike in September is a real possibility. After months of uncertainty and speculation, a senior Fed official came out in support of the rate increase sending the dollar upwards, primarily at the expense of the Swiss Franc and Canadian Dollar.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told the Wall Street Journal that it would take "significant deterioration" in the U.S. economy for him to not support a rate hike in September.
The journalist of the leading New York newspaper indicated that Lockhart’s view is of particular interest to investors because he is known as a moderate who usually follows the Fed’s general outlook.
Lockhart’s comments lifted U.S. Treasury yields after three days of sharp declines and the dollar bumped up 0.1 percent to 124.46 yen after backing away from an overnight low of 123.80. The euro slid to a two-week low of $1.0847 while the dollar index rose as high as 98.218, its highest since late April.
Lockhart’s Surprise Statement
Lockhart is a voting member on the Federal Open Market Committee but his assessment was unexpected nevertheless.
According to Richard Cochinos, head of Americas G10 FX strategy at Citi in New York, “Lockhart was not scheduled to speak until Monday (10 Aug), so the hawkishness of the comments, and the timing of the interview is surprising."
He cautioned that a September rate hike is till dependent on the U.S. non-farm payrolls data which is not scheduled to be released till Friday and that other factors, such as the Fed funds rate, may not be pointing to a September rate increase.