By William L. Watts and Lisa Twaronite, MarketWatch
LONDON (MarketWatch) — The dollar gained ground versus most major rivals Tuesday, boosted by short covering ahead of the release of minutes from the Federal Reserve’s September policy meeting.
The minutes, scheduled for release at 2 p.m. Eastern time, will be watched for an indication of how close the policy-setting Federal Open Market Committee is to implementing an additional round of quantitative easing when it meets in November.
The dollar has weakened in recent weeks after the Fed’s September statement was taken as a sign that more easing was likely on the way.
The dollar index (DXY 77.70, +0.26, +0.33%) , a measure of the U.S. unit against a basket of six major currencies, rose to 77.737 from 77.513 late Monday.
The euro (EURUSD 1.3819, -0.0052, -0.3749%) slipped to $1.3810 from $1.3880 late Monday.
“With currency markets having priced the possibility of more than $1 trillion of additional easing from the Fed, any moderation of that plan will continue to prove dollar positive as late bears scramble to cover” short dollar positions, said Boris Schlossberg, director of currency research at GFT.
Strategists at UniCredit Bank said remarks by Janet Yellen, the Fed’s newly-installed vice chair, tying loose monetary conditions to excessive risk-taking helped dampen risk appetite, allowing the dollar to recover slightly ahead of the release of the minutes. Read about Yellen's remarks.
But Steve Barrow, forex and fixed-income strategist at Standard Bank, said the remarks likely don’t indicate Yellen would resist a further round of quantitative easing if the issue is debated at the Fed’s November meeting.
“Yellen has a history as a dove and we don’t think she is likely to change because she has come back to the Fed board,” Barrow said.
The British pound (GBPUSD 1.5846, -0.0031, -0.1953%) traded at $1.5843, down from $1.5877.
British consumer price inflation was steady in September, with the annual rate remaining at 3.1%, in line with expectations. Read about British inflation data and the debate over QE.
The dollar (USDYEN 81.9300, -0.1600, -0.1949%) bought 81.96 Japanese yen, down from ¥82.18 in late North American trading Monday. The dollar fell to a fresh 15-year low near ¥81.37 on the EBS trading platform on Monday, traders said. See more tools and data on currency trading.
The yen “traded on a firmer footing as equity markets fell sharply amid fears that China could move to cool its economy from overheating following yesterday’s move to increase the reserve requirement for six large commercial banks,” said analysts at Action Economics.
China reportedly raised the amount of funds that banks must set aside as reserves by half a percentage point on Monday. Read more on China reserves requirement.
Such tightening fears offset the possibility that Japanese authorities would act to stem yen strength, a pledge reiterated by Japan’s top financial official Tuesday.
Japan’s Finance Minister Yoshihiko Noda said at his first press conference since returning from the weekend’s Group of Seven nations’ meeting of finance ministers and central bank officials that Japan would take “decisive” action if necessary, including currency market intervention, to stem the yen’s rise.
“I explained to the G-7 that Japan’s previous intervention was aimed at curbing excessive appreciation in the yen that could hurt the Japanese economy,” Noda said, according to Dow Jones Newswires. “G-7 members reconfirmed that volatile foreign-exchange market moves have a negative impact on the economy and financial markets.”
“We expect actual intervention” if the dollar were to fall to low 81-yen levels,” said Dariusz Kowalczyk, senior economist and strategist for Credit Agricole CIB, in emailed comments.
