BLBG:Dollar Index Reaches Three-Year High on Fed Outlook; Rupee Falls
The Dollar Index rose to a three-year high before Federal Reserve Chairman Ben S. Bernanke speaks this week amid speculation signs of U.S. economic growth will encourage the central bank to slow stimulus.
The dollar climbed to the strongest in five weeks versus the yen as the Fed prepares to release the minutes of its June meeting on Wednesday at which Bernanke said policy makers may begin slowing bond purchases. Sweden’s krona slid after a report showed a manufacturing slump in the economy deepened. India’s rupee fell to a record against the dollar on speculation investors will keep withdrawing money out of the nation. A U.S. report last week showed payrolls rose in June.
“The Fed’s tapering speculation is bolstered by the strong jobs data last week, and this will be supportive for the dollar,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “The currency has gained substantially recently and there may be some correction along the way but that will not change a longer-term outlook of the dollar’s strength.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six U.S. trade partners, was little changed at 84.324 at 6:20 a.m. in New York after climbing to 84.588, the highest level since July 2010.
The dollar was little changed at 101.11 yen after advancing to 101.53, the strongest since May 30. The U.S. currency dropped 0.2 percent to $1.2859 per euro. The euro rose 0.2 percent to 130.01 yen.
Bernanke Speaks
Bernanke speaks about economic policy on Wednesday in Boston after saying at the Fed’s previous meeting on June 19 that policy makers may reduce bond purchases this year and end them in mid-2014 if growth meets estimates. Minutes of the June meeting will be released on July 10.
The Fed is buying $85 billion of Treasuries and mortgage bonds each month to put downward pressure on borrowing costs in the third round of its quantitative-easing program. It purchased $2.3 trillion of assets from 2008 to 2011 in the first two rounds. The purchases tend to debase the currency.
“The Fed’s QE tapering in September is becoming more likely,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo, a unit of Japan’s third-biggest financial group by market value. “The dollar is strengthening across the board after recovery signs in the U.S. economy.”
U.S. payrolls increased by 195,000 in June for a second consecutive month, the Labor Department reported on July 5. The jobless rate stayed at 7.6 percent.
Dollar’s Advance
The dollar strengthened 7.5 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 5.5 percent, while the yen tumbled 9 percent, the biggest loser.
The krona fell for a second day versus the euro and the dollar after Statistics Sweden said industrial production dropped 2.6 percent in May after declining a revised 1.1 percent the previous month.
Sweden’s currency depreciated 0.7 percent to 8.7908 per euro after declining to 8.8164, the weakest since June 25. The krona dropped 0.5 percent to 6.8363 per dollar.
The rupee fell for a second day against the dollar after the U.S. payroll report last week increased the relative attraction of American assets.
“The data could lead to outflows from all emerging markets,” said Vikas Babu, a trader at state-run Andhra Bank in Mumbai. “The central bank could come in and intervene to protect key levels.”
Dollar Sales
Any dollar sales by the Reserve Bank of India will be aimed at reducing market volatility, rather than supporting the exchange rate as the rupee’s slide is in line with losses in other currencies, according to Barclays Plc.
The rupee fell 1 percent to 60.865 per dollar after depreciating to 61.2125, surpassing the previous record of 60.7650 set on June 26.
European Central Bank President Mario Draghi is due to speak in Brussels today after making an unprecedented pledge last week to keep interest rates low for an extended period.
The ECB’s monetary policy stance will “remain accommodative” for as long as needed to spur growth, he said July 4 after a policy meeting.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
