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Dollar firms as Fed seen hiking rate this year

St. Louis Fed President James Bullard said the central bank could lift rates at its October meeting.

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Federal Reserve policymakers have begun laying the groundwork for a possible interest rate increase in October after the central bank, anxious that global financial market volatility could dampen the US economy, declined to act last week. The US currency fell 0.1 percent to 120.50 yen.

The euro was lower at $1.1280, well below Friday’s peak of $1.1460, failing to get much impetus from decisive election results in Greece.

“About a month ago, uncertainties loomed larger, market volatility rose, and, from a policy maker’s perspective, risks to the domestic economy ratcheted up a little”, he said. The dollar was last up 0.12% against the Swiss franc at 0.97290 franc. Yao said the Fed should set objective conditions that will trigger a rate hike, such as inflation, unemployment and risks of property and housing bubbles. But since then, Fed officials have talked up a rate hike.

“Markets reassessed their risk-off reaction to the Fed’s move to some degree last night”, ANZ Bank New Zealand senior economist Sharon Zollner and senior FX strategist Sam Tuck said in a note.

Hong Pingfan, director of the Development and Policy Analysis Division at the United Nations’ Department of Economic and Social Affairs, said the long-term zero interest rates have distorted investors’ holdings of different assets and their prices.

Against a basket of six major currencies, the dollar was trading at 95.822, down 0.1 percent but still near Monday’s high of 95.978, its strongest level since September 10.

Inflation has run somewhat below the Committee’s2 percent objectivein recent years and was held down late last year by declining oil prices and appreciation of the dollar.

With Ms Yellen is slated to speak on Wedneslater this week, potentially providing more clarity as to whether to expect a rate increase this year, interest-rate futures indicate traders remain skeptical of a move in 2015.

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“Given the progress we’ve made and continue to make on our goals, I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year”, he said in a speech to a symposium in Armonk, New York. While the Bank of Japan seems like an obvious choice given the country’s struggle to find consistent growth and stable inflation, market attention seems to be focusing more closely on the European Central Bank in the direct aftermath of the Fed.

World markets tumbled on uncertainty about the global outlook