How Brussels Attacks Affected the Movement of the Dollar

Underpinned by comments from US Federal Reserve Officials on Wednesday, the dollar steadied as investors from Asia reacted to the recent attacks in Brussels.

The attacks on Brussels airport and the rush-hour metro train in the Belgian capital, which happened in Tuesday’s Asian session, killed many people and prompted security alerts all over Western Europe.

The dollar index, which keeps track of the US currency and its 6 major rivals, increased about 0.1 percent higher to 95.758. Meanwhile, the euro increased by about 0.1 percent to $1.1207 from the post-attack low of $1.1188.

The dollar was almost flat against the “safe haven” yen at 112.43. It is above 111.38 yen on Tuesday after the 17-month low of 110.67 yen last Thursday when Fed Chair Janet Yellen warned against the timing of the interest hikes this year.

“The market learned Fed officials can support the dollar, overall, and market is focusing on what they say, after what Yellen said last week pushed it lower,” says Kaneo Ogino, the director of Global-info Co, a foreign exchange research company in Tokyo.

According to Philadelphia Fed President Patrick Harker, the central bank should take into consideration another hike in interest rates as early as next month if the economy of the US continues to show signs of improvement. He also added that he prefers at least 3 hikes before the year-end.

Chicago Fed president Charles Evans, on the other hand, expects additional two interest rate hikes in 2016, unless the economy shows more strength than expected or if inflation would pick up faster than what was predicted. Although Evans doesn’t have a vote on the policy this year, he is known for being among the active policymakers in the US central bank. His remarks were followed by comments from several other officials that suggested implementation of interest hikes sooner rather than later.

“Evans normally leans towards lower rates so it is interesting that he is happy to talk about two hikes this year, with markets only priced for one,” says Sean Callow, a senior currency strategist for Westpac.

Sterling also increased by 0.1 percent to $1.4195 after declining by over 1 percent to one-week lows against the dollar after the Brussels attack. Three-month sterling options have increased to their highest levels as investors are hedging to a downward move for the upcoming Brexit.

Meanwhile, the Australian dollar, which usually sells off when there are high risk aversions, edged down to about 0.1 percent to $0.7613.

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