US dollar climbs after Fed minutes released

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(Bloomberg) -- The dollar rose as minutes from the Federal Reserve’s October meeting bolstered the outlook for a December interest-rate increase.

The U.S. currency traded near a seven-month high against the euro as Fed policy makers inserted language into their October statement to stress that “it may well become appropriate” to raise the benchmark lending rate in December, minutes from the meeting showed. The central bankers largely agreed that the pace of rate increases would be gradual.

“We’ve priced the December rate hike into the dollar,” said Chris Gaffney, president at EverBank World Markets in St. Louis. “I don’t think it changed anybody’s opinion on when the liftoff is going to begin. It squarely puts it in December, and that it’s going to be slow after that.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, rose 0.1 percent to 1,236.34 as of 3:03 p.m. in New York, after reaching its highest level in more than a decade. The dollar slid 0.1 percent to $1.0649 per euro after touching the strongest level since April, and was little changed at 123.57 yen.

Fed Message

A majority of Fed officials have signaled they expect to raise interest rates this year for the first time since 2006. That message was underscored when policy makers inserted a reference to the “next meeting” on Dec. 15-16 in their October statement, in connection with their assessment on when to act.

Participants in the meeting “generally agreed,” the minutes showed, “that it would probably be appropriate to remove policy accommodation gradually,” making it likely that the path of rate increases would be shallow after liftoff.

The probability the central bank will act next month has risen to 66 percent from 50 percent at the end of October, futures contracts show. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

"The fact that the Fed underlined that the trajectory of rate hikes is gradual is a message that we expect them to emphasize going forward," Bipan Rai, director of foreign- exchange strategy at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said by e-mail from Toronto. That "should help to moderate U.S. dollar gains," he said.