BLBG:Dollar Index Approaches 10-Month High on Bets Fed to Slow Easing
The Dollar Index 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 two of its 16 major peers after Fed Bank of San Francisco President John Williams said yesterday quickening growth and job-market gains may prompt the central bank to start reducing its $85 billion of monthly bond-buying in the next few months. The Fed will release minutes of its April 30-May 1 meeting next week. The Australian and New Zealand dollars fell to the lowest this year amid concern slowing inflation will weigh on demand for commodities.
“Considering Williams’ comments, the risk is that the Fed minutes next week will also have a hawkish feel to it and the dollar will rise,” said Yuki Sakasai, a foreign-exchange strategist at Barclays Plc in New York. “The U.S. economic data and comments from Fed speakers will be a focus.”
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, climbed 0.3 percent to 83.859 at 8:53 a.m. in London after rising to 84.094 on May 15, the highest since July 24.
The dollar was little changed at $1.2877 per euro, having strengthened 0.9 percent this week. The U.S. currency climbed 0.3 percent to 102.52 yen after appreciating to 102.76 on May 15, the highest level since October 2008. The yen fell 0.2 percent to 132.02 per euro.
Leading Indicators
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 survey before today’s Conference Board report. A separate Bloomberg survey predicts the Thomson Reuters/University of Michigan index of consumer sentiment will improve to 77.9 this month from 76.4 in April.
“It’s clear that the labor market has improved since September” when the Fed began its latest round of asset purchases, the San Francisco Fed’s 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.
Williams, who doesn’t vote on policy this year, was one of the first Fed officials to advocate that the central bank buy bonds without setting a limit on the duration or total for such purchases. The Federal Open Market Committee said May 1 it’s prepared to increase or decrease the size of its monthly bond-buying as officials gauge the health of the economy.
‘Definite Evidence’
“We love the U.S. dollar,” Malcolm Jones, who helps oversee about $260 billion as an investment director for Asia Pacific at Standard Life Investment Ltd., 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.”
The dollar will climb to $1.15 per euro during a year as U.S. housing and manufacturing recovers, he said.
The greenback has risen 5 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 2.2 percent.
Australia’s dollar fell to the lowest since June against the U.S. currency before the nation’s Reserve Bank releases minutes of its most recent policy meeting on May 21.
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) “Inflation continues to go lower, commodity prices continue to react to the downside in response to that.”
The so-called Aussie fell 0.6 percent to 97.47 U.S. cents after dropping to 97.27, the weakest level since June 5. New Zealand’s currency declined 0.7 percent to 80.96 U.S. cents after reaching 80.89 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: Garfield Reynolds at greynolds1@bloomberg.net
