Yen falls as Japan shows its first trade deficit since 1980
By V. Phani Kumar, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar gained ground versus major currencies Wednesday as investors awaited the outcome of the Federal Reserve’s policy meeting, with an eye on the revelation of individual voting members’ interest-rate expectations and Fed Chairman Ben Bernanke’s news conference.
The ICE dollar index DXY +0.54% , which measures the U.S. currency against a basket of six major units, climbed to 80.195, compared with 79.853 in North America late Tuesday.
The Federal Open Market Committee (FOMC) is due to conclude its two-day meeting with a statement being released at 12:30 p.m. Eastern time.
For the first time, the committee is slated at 2 p.m. Eastern to release forecasts made by individual members for the central bank’s interest-rate target. The members will also provide views on the likely timing of the first rate hike by the Fed. Read story on what to expect from the FOMC meeting.
“That’s something the market will be watching quite closely,” said Hamish Pepper, a currency strategist at Barclays Capital in Singapore. “Our house [view] is that those expectations could well be more dovish than the market expects.”
Bernanke will hold a press conference at 2:15 p.m. Eastern.
Strategists at Commerzbank said indications policy makers are expecting a policy rate near zero beyond 2013 would be a negative for the dollar, which over the past few months has gained ground as stronger U.S. economic data made the prospect of additional quantitative easing appear less likely.
“Recalling the sharp sell-offs in risk assets triggered by the Sept. 21 and Dec. 13 FOMC statement releases, we are mindful of unintended consequences,” Tim Condon, head of Asian economic research at ING Financial Markets Research, wrote in a note to clients.
Greece, Australia
Meanwhile, the euro EURUSD -0.50% fell to $1.2966, compared with $1.3026 late Tuesday, against the backdrop of unresolved talks between the Greek government and bondholders to restructure the nation’s debt.
An unexpectedly strong rise in Germany’s Ifo business climate index for January failed to provide lasting support.
The World Economic Forum meeting in Davos was also in focus, with German Chancellor Angela Merkel scheduled to make the official opening address later Wednesday.
The British pound GBPUSD -0.19% bought $1.5575, down from $1.5605.
Sterling was initially unfazed by a 0.2% quarterly contraction in fourth-quarter gross domestic product. Strategists said the data underscored expectations the Bank of England will move to further expand its program of asset purchases, the centerpiece of its quantitative easing program, in coming months. Read more: British economy shrinks, stirs QE speculation.
Japanese yen, Australian dollar
Among Asian currency pairs, the Japanese yen continued its decline after the nation’s trade balance turned in a deficit for the first time in 31 years. The dollar USDJPY +0.51% , rose to ¥78.09 compared with ¥77.74 late Tuesday.
The yen extended losses after data showed the nation’s trade account for 2011 returned a deficit of ¥205.1 billion ($2.63 billion), a figure that was worse than expected. Read about Japan’s first trade deficit since 1980.
In Asia, the Australian dollar jumped despite a soft headline-inflation reading, as underlying prices were firmer than some anticipated. Read more about Australian inflation data.
The Australian dollar AUDUSD -0.20% pushed above $1.05, then gave up gains by the U.S. session. It lately was little changed at bought $1.0473.
Barclays’ Pepper said that while the headline figure was weaker than expected, “I think what matters more is the underlying inflation that actually surprised on the upside.”
However, the inflation data were unlikely to make the Reserve Bank of Australia rethink its policy-easing stance. Pepper said he expects the RBA to cut its benchmark interest rate three times, for a total 0.75 percentage points, by July.
