Tags: dollar | Federal Reserve | Ebola | forex

Dollar Pares Weekly Gain Before Fed on New York Ebola Case

Friday, 24 October 2014 10:33 AM

The dollar pared its first weekly gain in three weeks against a basket of peers as an Ebola diagnosis in New York crimped risk appetite before the Federal Reserve meets on policy.

The yen halted a six-day drop against the dollar after a doctor tested positive for the disease in the most populous U.S. city, boosting haven demand. The Bloomberg Dollar Spot Index slipped from almost its highest in more than two weeks before a new-home-sales report. The euro rallied even as a draft report indicated 25 euro-area banks are set to fail a European Central Bank stress test. Russia’s ruble sank.

“We saw a little bit of a pullback in the dollar and a little bit of a reduction in risk appetite as a result of the Ebola story,” Omer Esiner, chief market analyst at the currency brokerage Commonwealth Foreign Exchange Inc. in Washington, said in a phone interview. “Next week we’re going to likely shift our focus back on to more fundamental stories, with the Fed probably going to headline next week’s economic calendar.”

The Bloomberg Dollar Spot Index lost 0.2 percent to 1,067.70 as of 9:55 a.m. New York time, paring the gauge’s first weekly gain since the period ending Oct. 3 to 0.4 percent. The measure touched 1070.57 yesterday, the highest since Oct. 7.

The yen strengthened 0.3 percent to 107.95 per dollar after depreciating to 108.35 yesterday, the weakest level since Oct. 8. Japan’s currency was little changed at 136.95 per euro. The dollar fell 0.3 percent to $1.2686 per euro.

Ruble Corridor

The Australian dollar was the biggest gainer of the U.S. currency’s 31 major peers, rising 0.7 percent to 88.21 U.S. cents.

The Aussie was poised for its third consecutive week of gains, the longest streak since June, as Chinese data eased concern about a slowdown in the world’s largest economy and Australia’s largest trade partner.

The ruble slumped the most versus the dollar. The currency fell to a record as Bank of Russia shifted its trading band by the most since 2012 amid concern Standard & Poor’s will cut the country’s credit rating to junk.

The central bank raised the corridor against its target dollar-euro basket by 40 kopeks yesterday, according to a statement on its website. The ruble weakened 0.6 percent versus the basket to 47.0007.

The euro rose as a draft communique showed 25 lenders are set to fail the ECB’s bank health check, while 105 are on track to pass. The final results are published on Oct. 26.

Ebola Effect

The dollar dropped versus the yen as the International Monetary Fund this week cut its forecast for economic growth in sub-Saharan Africa this year to 5 percent from 5.5 percent, due in part to “economic spillovers starting to materialize” from the Ebola outbreak.

Ebola has infected almost 10,000 people this year, mostly in Sierra Leone, Guinea and Liberia, killing about 4,900. The ill New York doctor had recently returned from aid work in Guinea.

The yen gained “on fears of a potential pandemic,” said Greg Gibbs, the head of Asia-Pacific markets strategy at Royal Bank of Scotland Group Plc in Singapore. “There is a bubbling fear percolating in the background. Ebola is certainly on the market’s radar.”

Yen Reversal

The yen has depreciated 1.1 percent versus the dollar since Oct. 17, after strengthening about 2.6 percent during the previous two weeks.

The yen slumped 5.3 percent against the dollar in September, its biggest monthly loss since January 2013, and depreciated to 110.09 per greenback on Oct. 1, the weakest level since August 2008.

Japan isn’t trying to weaken its currency, Finance Minister Taro Aso said today in Tokyo.

“For the week as whole, the yen is still weaker, as safe- haven-driven gains from last week have reversed,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.

The dollar rose against most of its peers this week after a consumer price index added more than expected, moving the Federal Reserve closer to its target of 2 percent inflation.

New home sales slumped 6.8 percent to 470,000 last month, according to the median forecast of 75 analysts surveyed by Bloomberg News before a report today.

The central bank meets next week to consider monetary policy, which has seen rates held at zero to 0.25 percent since 2008. The Fed is expected to end its stimulatory program of bond purchases, known as quantitative easing, this month.

“The Fed is likely on track to wind down QE next week,” said Commonwealth Foreign Exchange’s Esiner. “That does of course raise questions about the timing of the first rate hike but I think that’s still a generally positive backdrop for the dollar.”

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The dollar pared its first weekly gain in three weeks against a basket of peers as an Ebola diagnosis in New York crimped risk appetite before the Federal Reserve meets on policy.
dollar, Federal Reserve, Ebola, forex
Friday, 24 October 2014 10:33 AM
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