By Daniel Bases
NEW YORK (Reuters) – The dollar hit a three-week high against the euro and a two-month peak versus the yen on Wednesday, extending a rebound rally supported by European Central Bank plans to front-load its bond buying program in a move to keep interest rates low.
Minutes released from April’s U.S. Federal Reserve monetary policy meeting indicate expectations that the U.S. economy’s strength should pick after a slack first quarter, supporting a view that interest rates will rise sooner rather than later.
One strategist says even more important than the minutes are recent regional Fed studies indicating that the disappointing growth in the first quarter was an anomaly.
“That basically means the Fed is going to ignore that weakness which increases their confidence in hiking rates earlier rather than later this year,” said John Vail, chief global strategist at Nikko Asset Management in New York.
“If it does mean the Fed is more inclined to raise earlier than later, it is going to continue to support the dollar, although it might not reach new highs,” he added.
In late afternoon New York trade, the euro bounced off its three-week low of $1.10620 to trade off 0.25 percent at $1.11220, on the EBS trading platform.
“The ECB has taken the wind out of the euro’s sails,” said Mark McCormick, currency strategist at Credit Agricole in New York.
McCormick added that the ECB’s plans have helped focus the market on consolidating the euro’s recent rally, especially as it approached $1.15.
The dollar held near the two-month peak of 121.49 yen, up 0.34 percent.
Some analysts pointed to headlines about Greece as weakening the euro, but most said the biggest element was the sense that the past month’s 8 percent pullback has cleaned out many long-term bets on the dollar, leaving room for new action.
“Positions are a lot cleaner and that may well have opened the way to another push higher,” said Josh O’Byrne, a strategist with Citi in London.
Sterling resisted the charge, gaining 0.21 percent to $1.5542 on the back of some new signs of unease over ultra-low rates and the housing market from the Bank of England.
Separately, five of the world’s largest banks on Wednesday were fined roughly $5.7 billion for manipulating financial markets. Four of them agreed to plead guilty to U.S. criminal charges over manipulation of foreign exchange rates while a fifth agreed to plead guilty to rigging benchmark interest rates.
(Additional reporting by Patrick Graham and John Geddie in London; Editing by Chris Reese and Jonathan Oatis)