BLBG:Dollar Rises Most in 6 Weeks Versus Yen After Fed; Krone Slides
The dollar strengthened the most in six weeks against the yen after Federal Reserve Chairman Ben S. Bernanke flagged the case for reduced monetary stimulus this year if the U.S. economy keeps improving.
The dollar rose for a second day versus the euro after Bernanke said the central bank could reduce its third round of quantitative easing if the economy achieves sustainable growth. Norway’s krone tumbled the most in three years versus the euro after Norges Bank Governor Oeystein Olsen said the policy rate may be lower in the year ahead. The Australian dollar slid as the prospect of reduced stimulus damped demand for higher-yielding. Global currency volatility rose to the most in a year.
“QE3 is now likely to end in the middle of next year so we’ve had an initial rise in the dollar,” said Gavin Friend, a currency strategist at National Australia Bank Ltd. in London. “People are reading this as the end the cheap money that’s gone into emerging markets from the U.S. and Europe. If today’s U.S. data is reasonable, the dollar will continue to rally against currencies like the Aussie in particular.”
The dollar rose 1.5 percent to 97.86 yen at 6:58 a.m. in New York, the biggest gain since May 9. The U.S. currency advanced 0.7 percent to $1.3196 per euro after climbing 0.7 percent yesterday. The yen fell 0.7 percent to 129.05 per euro.
The Dollar Index, which IntercontinentalExchange Inc. uses to monitor the greenback against the currencies of six U.S. trade partners, gained 0.7 percent to 81.967. The JPMorgan Global FX Volatility Index increased to 11.51 percent, the highest level since June 7, 2012. The average in the past year is 8.66 percent.
Fed Purchases
The Federal Open Market Committee yesterday left the monthly pace of bond purchases at $85 billion, saying “downside risks to the outlook for the economy and the labor market” have diminished. Policy makers raised their growth forecasts for next year to a range of 3 percent to 3.5 percent and reduced their outlook for unemployment to as low as 6.5 percent.
“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said in a press conference in Washington. If later reports meet the Fed’s expectations, “we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”
St. Louis Fed President James Bullard dissented, saying the committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings, according to the FOMC’s statement.
Home Sales
U.S. existing home sales climbed 0.6 percent in May from a month earlier to a 5 million annualized rate, the strongest since November 2009, according to economists surveyed by Bloomberg News before data from the National Association of Realtors. The Fed Bank of Philadelphia’s general economic index rose to minus 2 in June from minus 5.2 last month, a separate survey showed before today’s report.
Australia’s dollar dropped for a fifth day versus the greenback amid the prospect of reduced Fed stimulus and after HSBC Holdings Plc and Markit Economics said the preliminary reading of their Purchasing Managers’ Index for China’s manufacturing was at 48.3 in June, below the 49.1 estimated by economists in a Bloomberg survey.
‘Remains Crucial’
“The link between the China growth story and the Aussie dollar remains crucial,” said Michael Judge, a dealer at OZForex Pty Ltd. in Sydney. “We all know the only way interest rates are heading in this country at the moment is south, and obviously weakening China growth doesn’t help that prognosis.”
The Aussie slid 1 percent to 92 U.S. cents after dropping to 91.64, the weakest since Sept. 8, 2010. The New Zealand dollar dropped 1.6 percent to 77.71 cents after reaching 77.43, the lowest since June 14, 2012.
India’s rupee dropped 1.8 percent to 59.7725 per dollar after depreciating to a record 59.98. South Korea’s won declined to as low as 1,146.55 per dollar, the weakest since July 26, before closing 1.3 percent lower at 1,145.63. The Turkish lira dropped to an all-time low versus the dollar, weakening as much as 1.5 percent to 1.9315.
Norway’s currency declined the most since 2011 against the dollar. The central bank kept its benchmark rate at 1.5 percent at its meeting today, as forecast by 21 of the 22 economists surveyed by Bloomberg. The central bank predicted the key rate would be 1.38 percent in the fourth quarter of this year, versus an earlier forecast of 1.45 percent.
“The price action has been quite extreme,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “The language showed a bias towards the prospects of a rate cut. A lot of the market was expecting the Norges Bank to remove this scope, so that was a big surprise.”
The krone slumped 1.9 percent to 7.8217 per euro, the biggest one-day drop since May 2010. It slid to 7.8235, the weakest since November 2011. Norway’s currency fell 2.7 percent to 5.9312, the largest decline since August 2011.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
