Tags: Dollar | High | Fed | Stimulus

Dollar Rises to 4-Month High on Fed Stimulus Views

Wednesday, 08 January 2014 05:52 PM

The dollar rose to a four-month high Wednesday after the minutes of the Federal Reserve’s last meeting showed officials saw diminishing economic benefits from bond-buying and expressed concern about risks to financial stability.

Europe’s currency touched the weakest level versus the greenback in a month as U.S. company hiring jumped by 238,000 in December, according to ADP Research Institute. The Labor Department’s nonfarm-payrolls report comes out Friday. Canada’s dollar fell for a third day, while India’s rupee appreciated.

“It’s confirming market expectations that the Fed is going to go ahead with the taper, and that’s something that’s going to continue through 2014,” Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York, said in a phone interview. “The reason we’re seeing dollar strength is still the positive effect of ADP that we saw earlier today. This is building on that.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 of its major counterparts, rose 0.2 percent to 1,028.79 at 5 p.m. in New York after gaining 0.3 percent yesterday. It touched 1,030.12, the highest level since Sept. 9.

The dollar gained 0.3 percent to $1.3576 per euro after appreciating to $1.3554, the strongest since Dec. 5. The U.S. currency rose 0.3 percent to 104.86 yen after climbing to 105.44 on Jan. 2, the highest since October 2008. The yen rose 0.1 percent to 142.35 per euro.

Loonie, Rupee

Canada’s dollar fell for a third day after central bank Governor Stephen Poloz said yesterday he was not facing any pressure to increase interest rates.

The Bank of Canada may insert a bias for lower borrowing costs into the policy language at its Jan. 22 meeting to set up a rate cut in the first half of 2014 as the danger of low inflation mounts, Morgan Stanley analysts said in a research note this week.

The loonie dropped 0.5 percent to C$1.0820 per U.S. dollar after depreciating to C$1.0830, the weakest since May 2010.

India’s currency rose before data this week that’s forecast to show industrial production increased 0.9 percent in November from a year earlier after shrinking 1.8 percent the previous month, according to the median of 27 estimates in a Bloomberg survey before official data due Jan. 10.

The rupee advanced 0.4 percent to 62.0750 per dollar.

Norway’s krone dropped against most of its 16 major counterparts after industrial production manufacturing fell 0.2 percent in November from the previous month.

The Norwegian currency declined 0.5 percent to 6.2025 per dollar and weakened 0.2 percent to 8.4199 per euro.

‘Marginal Efficacy’

The minutes of the Fed’s December gathering didn’t describe a set schedule for the pace of asset-purchase reductions after policy makers cut monthly purchases to $75 billion from $85 billion, citing improvement in the labor market.

“A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue,” the record of the Federal Open Market Committee’s Dec. 17-18 meeting showed. Participants also were “concerned about the marginal cost of additional asset purchases arising from risks to financial stability,” citing the potential for “excessive risk-taking in the financial sector.”

Fed policy makers gather Jan. 28-29 to consider the next step in their strategy of gradually reducing the pace of purchases. They will trim buying in $10 billion increments over the next seven meetings before ending them in December, according to the median forecast in a Bloomberg News survey on Dec. 19.

‘Definitely Positive’

Last month’s increase in company payrolls followed a revised 229,000 gain in November that was stronger than initially estimated, according to ADP in Roseland, New Jersey. The median forecast of 36 economists surveyed by Bloomberg was for a 200,000 advance in December.

The ADP data was “definitely positive for the dollar on a knee-jerk, and likely to force banks to revise their NFP forecasts even higher, which may bring the median expectations up a bit for Friday,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, wrote in an e-mail note. It “should be supportive for the dollar and the 10-year note yield, although I wouldn’t expect a big reaction until NFP on Friday.”

Employers added 195,000 workers in December, down from 203,000 the previous month, economists in a Bloomberg News survey before the Labor Department nonfarm report. The unemployment rate will remain at 7 percent, a separate survey showed.

The dollar gained 1.7 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro rose 2.2 percent, while the yen slumped 6.4 percent to lead decliners.

JPMorgan Chase & Co.’s volatility index for the currencies of the Group of Seven nations climbed six basis points, or 0.06 percentage point, to 8.1 percentage points after dropping to 7.95 percentage points Monday, the lowest since Nov. 21.

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The dollar rose to a four-month high Wednesday after the minutes of the Federal Reserve's last meeting showed officials saw diminishing economic benefits from bond-buying and expressed concern about risks to financial stability.
Wednesday, 08 January 2014 05:52 PM
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