Dollar on high against yen; pound rebounds

The dollar climbed to a new six-year high against the yen and rallied against the euro after the Federal Reserve gave more guidance on its intentions to raise interest rates amid an economic recovery in the US. The dollar rose by 1.1% against the yen to a high of ¥108.39, its strongest level since September 2008. The euro fell as low as $1.2852, a new 14-month low. Emerging-market currencies also weakened against the dollar, with the Turkish lira hitting a fresh six-month low.

Investors have bet heavily on the dollar in recent weeks believing that a strong US recovery would prompt the Fed to send a stronger signal on when it would raise interest rates from near zero. The dollar has recently gone on its longest winning run in more than 17 years, rising against a broad basket of currencies for nine straight weeks, according to the ICE US Dollar Index. Higher interest rates would make the dollar more attractive to yield-seeking investors.

Although the Fed reiterated in its statement that it would be a “considerable time” before it raises rates, it also gave a more thorough description of how it would manage an increase when the time arrives. Investors saw the comments as another step toward lifting rates, which have been at current historic lows since 2008.

Meanwhile, over the past couple of weeks the pound had fallen on fears that Scotland would vote in favour of independence. However, as it became clear that Scotland would vote against leaving the union, the pound spiked to a two-year high against at the euro and two-week high against the US dollar.