Tags: dollar | federal reserve | currency traders | economy

Dollar's Advance Says Traders Look Past Dovish Words From Fed

Sunday, 22 Feb 2015 06:20 PM

Never mind what they say, Federal Reserve policy makers are bent on raising interest rates this year.

That’s the opinion of the $5.3-trillion-a-day currency market, which sent the dollar to its first gain in three weeks even after the minutes of the Fed’s last meeting showed many officials called for keeping rates lower for longer. Despite the dovish sentiment, traders still see a better than 50-50 chance rates — which have been held at virtually zero since 2008 — will rise by September. Fed Chair Janet Yellen may offer more insight when she addresses Congress next week.

“There was no major correction and the market is still long,” Fabian Eliasson, who works in foreign-exchange sales at Mizuho Financial Group Inc. in New York, said Feb. 19. “Even though we had less hawkish Federal Open Market Committee minutes, it still stays the same and doesn’t change that much.” A long position is a bet an asset will increase in value.

The Bloomberg Dollar Spot Index, a gauge of the currency’s performance against 10 major peers, rose 0.4 percent to 1,166.69 on the week in New York.

The greenback gained 0.1 percent to $1.1381 versus the euro as European leaders and Greek officials reached a tentative agreement Feb. 20 to keep bailout funds flowing to the indebted nation. The dollar appreciated 0.2 percent to 119.03 yen.

Growth Concern

The currency market’s first reaction to the Feb. 18 release of the minutes to the Fed’s January meeting was to selloff the dollar as policy makers highlighted threats to growth — currency strength, international flash points from Greece to Ukraine, and slow wage growth.

With such concerns, “many participants” were “inclined toward keeping the federal funds rate at its effective lower bound for a longer time,” according to the record of the Jan. 27-28 FOMC meeting.

“Their concern about a strong dollar came through, and that puts summer for a rate hike as a very unlikely timetable — we’re probably looking at the fall,” Alfonso Esparza, senior currency analyst at Oanda Corp., said by phone from Toronto on Feb. 18. “They don’t want to raise rates too soon and have the strong dollar and higher rates damp the growth of the U.S. economy.”

The market took a more optimistic view the next day, pushing the U.S. currency to its largest gain in more than a week as a bigger-than-forecast decrease in jobless claims reinforced speculation that U.S. economic growth is outpacing global peers.

‘More Hawkish’

Traders noted also that the Fed’s last gathering took place before a report showed wages jumped in January and the U.S. capped the biggest three-month payrolls gain in 17 years.

Federal fund futures traded on the CME Group Inc. exchange give an 53 percent chance the central bank will lift rates at their policy meeting in September, according to Bloomberg data. That’s up from 49 percent after the Fed announcement.

Now all eyes turn to Yellen, who will deliver her semi- annual monetary-policy report Feb. 24-25.

“There’s a sense she’ll be more hawkish than the minutes were,” Brian Edmonds, the head of interest-rates trading in New York at Cantor Fitzgerald LP, one of 22 primary dealers that trade with the central bank, said Feb. 20. “Clearly the Fed wants to raise rates.”

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Never mind what they say, Federal Reserve policy makers are bent on raising interest rates this year.That's the opinion of the $5.3-trillion-a-day currency market, which sent the dollar to its first gain in three weeks even after the minutes of the Fed's last meeting showed...
dollar, federal reserve, currency traders, economy
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2015-20-22
Sunday, 22 Feb 2015 06:20 PM
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