FOREX-Dollar rises after U.S. oil inventories data boost bets on Fed move

NEW YORK (Sept 8)  The dollar rose against the yenon Thursday, spurred by a jump in oil prices that put upwardpressure on U.S. inflation expectations and pushed traders toincrease their outlook on a rate hike from the Federal Reserve.

Oil prices surged more than 4 percent on Thursday after U.S.inventory data showed crude stocks dropped by the most sinceJanuary 1999, as imports fell due to Tropical Storm Hermine lastweek. The dollar rose 0.75 percent against the yen to102.54. The currency pair is generally considered the mostvulnerable to rising U.S. interest rates and inflationexpectations.

The dollar had fallen as low as 101.42 yen in early tradingas expectations the Bank of Japan would expand its monetarystimulus this month faded after a Bank of Japan deputy governorgave few fresh clues on the bank's thinking. "The reason that it's turned around is the market steppedback and said, 'Hold on. If oil jumps, inflation looks a lotmore scary and the Fed is more likely to hike," said said GregAnderson, global head of foreign exchange strategy at BMOCapital Markets.

Fed fund futures prices showed tradersnow see a 57 percentchance of at least one interest rate increase from the Fed byDecember, up from just under 47 percent on Wednesday.

The euro hit a nearly two-week high against the dollar afterthe European Central Bank left interest rates unchanged andstopped short of a formal commitment to further expand itsasset-purchase program, which ECB head Mario Draghi said had noteven been discussed.

Draghi unveiled a modest downgrade to the ECB's euro zonegrowth forecasts and warned of downside risks, includinguncertainty relating to Britain's decision to exit the EuropeanUnion. However, he said no action was required for now. The euro rose to a session high of $1.1326 againstthe dollar during Draghi's speech, its strongest since Aug. 26.It pared gains following the oil inventory data and was last up0.2 percent at $1.1260.

The advance by the euro was due largely to dashedexpectations of an extension of the ECB's stimulus program.

The dollar index , which tracks the greenback againstsix major world currencies, erased earlier losses to turnpositive and was last up 0.1 percent. During Draghi's remarks,it fell to its lowest since Aug. 26.

Source: KitcoNews