Tags: Dollar | Gain | Decade | Fed | Ruble

Dollar Poised for Biggest Gain in a Decade on Fed Tactics as Ruble Sinks

Wednesday, 31 December 2014 05:10 PM

The dollar headed for its best year since at least 2005 amid speculation the Federal Reserve will raise interest rates next year as policy makers in Europe and Japan ease further.

The greenback has climbed versus all of its 31 major peers in 2014 as data showed growth in the U.S. economy accelerated to the fastest pace in more than a decade. The yen tumbled for a third straight year as the Bank of Japan expanded currency- depreciating stimulus in an effort to overcome deflation. The euro slid amid mounting expectation that the European Central Bank, which next meets on Jan. 22, will start buying sovereign bonds. Russia’s ruble led the currencies of oil exporters lower.

“It has been a good year for the dollar,” Eric Viloria, a strategist at Wells Fargo & Co. in New York, said in a phone interview. “It’s experienced broad-based gains, the Fed concluded its quantitative-easing program and signaled that rate hikes are coming. All of these things, along with a positive fundamental outlook and strong economic data, are positive for the dollar.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, has risen 11 percent this year, the most in data going back to 2005. The gauge added 0.2 percent to 1,131.19 at 4:09 p.m. New York time after closing at 1,133.13 on Dec. 23, the highest since March 2009.

The yen fell 0.3 percent to 119.81 per dollar after depreciating to 121.85 on Dec. 8, the weakest since July 2007. The currency has declined 12 percent this year. The euro dropped 0.5 percent to $1.2099 today, extending an annual 12 percent loss, the most since 2005. Japan’s currency rose 0.2 percent to 144.97 per euro.

Year’s Losers

Financial markets were shut today in Japan, South Korea, Thailand and the Philippines, and closed early in Australia and Singapore for end-of-year holidays. European markets including the London Stock Exchange and the NYSE Euronext’s European cash markets also had shortened trading days.

Russia’s ruble has lost the most of the U.S. dollar’s 31 major peers this year, falling 46 percent, as it caved under the pressure of U.S. and European sanctions and sliding oil prices. The nation’s economy may contract about 4 percent in 2015 if oil stays at $60 a barrel, according to Finance Minister Anton Siluanov. Crude touched a five-year low of $52.44 a barrel in New York today and slid 45 percent in the past 12 months, the worst year since 2008.

Currencies of other oil exporters have also suffered, with the Norwegian krone slumping 19 percent, Nigeria’s naira dropping 13 percent and the dollar of Canada slipping 8.5 percent.

Yen Debasing

The yen has dropped versus all except two of its 16 major counterparts this year. The foreign-exchange market is bracing for more yen-debasing stimulus measures from the Band of Japan in 2015 after the nation slipped into a recession last quarter.

The median estimate of economists and strategists surveyed by Bloomberg is for an additional decline to 125 yen per dollar. A fourth annual decline would be the yen’s longest losing streak in data starting in 1971.

The euro has fallen versus all but three of its 16 major peers this year amid speculation the ECB will start purchasing government bonds in 2015 to push down borrowing costs and revive flagging growth.

ECB Purchases

“The fact that you have the ECB meeting, people are just so focused on that and still waiting for any kind of announcement on quantitative easing to really get excited about,” Matt Derr, a foreign-exchange strategist at Credit Suisse Group AG, said by phone from New York. “That will keep people long dollars and short euro.” A long position speculates on a gain by that currency, a short bets on a loss.

The dollar will climb to $1.18 per euro by the end of next year, according to the median forecast of analysts surveyed by Bloomberg News.

Traders see about 71 percent odds the central bank will raise the target for its benchmark to at least 0.5 percent by October, based on futures contracts.

“The dollar has had an extremely good year,” said Mark McCormick, a foreign-exchange strategist at Credit Agricole SA in New York. “It’s been driven primarily by outside forces and I think what we’ll see in 2015 is, we’ll see U.S. forces start to drive the dollar, which means the Fed will probably begin normalizing policy.”

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The dollar headed for its best year since at least 2005 amid speculation the Federal Reserve will raise interest rates next year as policy makers in Europe and Japan ease further.The greenback has climbed versus all of its 31 major peers in 2014 as data showed growth in the...
Dollar, Gain, Decade, Fed, Ruble
Wednesday, 31 December 2014 05:10 PM
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