BLBG:Dollar Index Approaches 10-Month High on Fed Bets; Rand Slides
The Dollar Index (DXY) approached the highest level in almost 10 months on speculation the Federal Reserve is moving closer to ending its program of asset purchases as the world’s largest economy improves.
The U.S. currency rose versus all except one of its 16 major peers after Fed Bank of San Francisco President John Williams said yesterday quicker growth and job-market gains may prompt the central bank to start reducing its $85 billion of monthly bond purchases. The Federal Open Market Committee will release minutes of its April 30-May 1 meeting next week. South Africa’s rand fell to a four-year low on concern labor-market unrest and lower commodity prices will damp growth.
“Recent comments from Fed policy makers including Williams suggest an increasing number of FOMC members are looking to taper their quantitative-easing program,” said Henrik Gullberg, a London-based currency strategist at Deutsche Bank AG. “Market anticipation that the Fed minutes next week will reflect that kind of thinking is probably underpinning demand for the dollar.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, climbed 0.4 percent to 83.924 at 7:01 a.m. in New York after rising to 84.094 on May 15, the highest since July 24.
The dollar gained 0.2 percent to $1.2860 per euro, extending this week’s advance to 1 percent. The U.S. currency rose 0.1 percent to 102.36 yen after appreciating to 102.76 on May 15, the highest level since October 2008. The yen was little changed at 131.65 per euro.
Leading Indicators
Williams, who doesn’t vote on policy this year, was one of the first Fed officials to advocate the central bank buy bonds without setting a limit on the duration or total for such purchases. The FOMC said on May 1 it’s prepared to increase or decrease the size of its monthly bond-buying as officials gauge the health of the economy.
“It’s clear that the labor market has improved since September” when the Fed began its latest round of asset purchases, Williams said in a speech in Portland, Oregon. “We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer” and end the program late this year, he said.
An index of U.S. leading indicators, a gauge of the outlook for the next three to six months, rose 0.2 percent last month after dropping 0.1 percent in March, according to a Bloomberg News survey before today’s Conference Board report. The Thomson Reuters/University of Michigan index of consumer sentiment will improve to 77.9 in May from 76.4 the previous month, a separate survey predicts.
‘Definite Evidence’
“We love the U.S. dollar,” Malcolm Jones, who helps oversee $260 billion as an investment director for Asia Pacific at Standard Life Investment Ltd. in Hong Kong, said in an interview yesterday. “There’s definite evidence that the U.S. dollar is becoming more of a pro-growth currency and the markets have started taking more notice of the fact that of the places you can invest, the U.S. is probably the better place to be.”
The greenback will strengthen to $1.15 per euro during a year as U.S. housing and manufacturing recovers, he said.
The dollar has appreciated 5.1 percent in 2013, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen slumped 13 percent, the biggest loser, while the euro gained 2.1 percent.
Rand Slides
The rand slid for a seventh day against the dollar after Cyril Ramaphosa, deputy president of the ruling African National Congress, said the situation at the nation’s mines, which contribute more than half of South Africa’s export earnings, is “quite volatile.”
“There is no doubt that the stories and rumors of strikes and union violence are the key factor of intraday volatility,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, wrote in e-mailed comments. “Threats that the Fed could bring an early end to its quantitative-easing program” are also weakening the rand, he said.
The rand fell 0.8 percent to 9.3976 per dollar after declining to 9.4413, the weakest level since April 2009.
Australia’s dollar fell to the lowest since June against the U.S. currency before the Reserve Bank releases minutes of its May 7 policy meeting next week.
Central bank Governor Glenn Stevens lowered borrowing costs to a record 2.75 percent at the gathering and cut the inflation outlook, while reiterating a forecast for below-trend growth.
“Market sentiment toward the Aussie is very bearish,” said Khoon Goh, a senior strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore. “Inflation continues to go lower, commodity prices continue to react to the downside in response to that.”
The so-called Aussie fell 0.5 percent to 97.56 U.S. cents after dropping to 97.27, the weakest since June 5. New Zealand’s currency declined 0.6 percent to 81.06 U.S. cents after sliding to 80.84 cents, the lowest since Nov. 16.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
