US dollar spurred by expectations of a Federal Reserve rate rise later this month

Governor Lael Brainard said that an improving global economy and a strong US recovery both mean that the next increase in interest rates will be "appropriate soon"

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The dollar was trading around a seven-week high against a slew of currencies on Thursday, spurred by ever clearer signs that the US central bank is preparing to raise interest rates later this month.

Federal Reserve Governor Lael Brainard said late Wednesday that an improving global economy and a strong US recovery both mean that the next increase in interest rates will be "appropriate soon".

The dollar index, a common benchmark of the currency’s strength against a selection of other global currencies, rose to its highest level since 11 January after the comments and hovered around that level early Thursday.

Currency strategists at UniCredit pointed out that Ms Brainard is “usually cautious in her comments about monetary tightening” and that they expect the US dollar to retain its firmness over the next two weeks leading up to the policy meeting “unless the Fed softens its language again”.

Already on Tuesday, New York Fed President William Dudley said the case for tightening monetary policy had become "a lot more compelling", according to Reuters.

“We expect that the Fed will also hike in September and December," said Andreas Johnson, an economist at SEB. "A September hike would provide some time for more details about economic policy to emerge from the Trump administration and also allow for a gradual tightening of monetary policy."

The dollar’s fierce rally is coinciding with a continued rise in US stocks, which market participants have dubbed the ‘Trump bump’.

On Wednesday the Dow Jones Industrial Average stock index broke through the 21,000 mark for the first time ever after US President Donald Trump adopted a more moderate tone in his first address to a joint session of Congress, reassuring some investors who had been disconcerted by his aggressive tone and divisive policies.

It was just over one month ago that the index surpassed the 20,000 mark for the first time in its history.

Neil Wilson, a market analyst at ETX Capital, said that this is the fastest time ever that the index has passed a 1,000-point milestone.

“Trump’s rallying call to reignite the American spirit has produced the desired effect on the markets, pushing stocks to fresh all-time highs,” he said.

“The prospect of stronger growth, lower taxes, more spending and higher earnings is like a magic cocktail for equities."

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