BLBG:Dollar Gains Before Bernanke Testimony; Pound Rises on BOE Vote
The dollar strengthened and the yen fell before testimony from Federal Reserve Chairman Ben S. Bernanke that investors are looking to for signs on the strength of the U.S. economy and the central bank’s stimulus plans.
The U.K. pound rose from a four-month low against the euro after minutes of the Bank of England’s last meeting showed policy makers unanimously backed new Governor Mark Carney’s vote against expanding stimulus. The Bloomberg Dollar Index snapped a two-day decline before data that economists said will show U.S. housing starts increased for a second month, adding to the case for the Fed to slow monetary easing. Canada’s dollar fell amid bets the central bank will keep interest rates unchanged.
“We are very constructive on the U.S. dollar for very fundamental reasons,” Deutsche Bank AG Co-Chief Executive Officer Anshu Jain said in a Bloomberg Television interview with Haslinda Amin in Singapore. “A combination of a U.S., which is re-industrializing, and a household, which is starting to spend again, could presage a long, strong period for the U.S., which of course would be good for the dollar.”
The dollar advanced 0.5 percent to 99.64 yen at 10:26 a.m. London time after losing 0.8 percent yesterday. It strengthened 0.1 percent to $1.3145 per euro. The Japanese currency weakened 0.4 percent to 130.94 per euro.
The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.3 percent to 1,032.93.
Sustainable Growth
Bernanke said on June 19 that the Fed may start slowing its unprecedented bond-buying program this year and end it entirely in mid-2014 if the economy achieves sustainable growth. Minutes released on July 10 of the Fed’s last policy meeting showed “about half” of participants indicated “it likely would be appropriate” to end the buying late this year.
The central-bank chairman is scheduled to deliver his semi-annual monetary policy report to Congress, starting with the House Financial Services Committee today. His prepared testimony will be released at 8:30 a.m. in Washington and the hearing begins at 10 a.m. The Fed purchases $85 billion of Treasuries and mortgage debt each month as part of its latest round of quantitative easing to cap borrowing costs, a program that tends to debase the currency.
The U.S. Commerce Department will say today that housing starts climbed 5 percent in June from a month earlier to a 960,000 annualized rate, according to the median estimate of economists surveyed by Bloomberg News.
Global Volatility
JPMorgan Chase & Co.’s Global FX Volatility Index, a measure of currency fluctuations, slipped to 10.41 percent, the lowest since June 18. It reached a one-year high of 11.96 on June 24.
“The dollar is unlikely to be sold in the long term,” said Masato Yanagiya, the New York-based head of foreign-exchange and money trading at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest financial group by market value. “The market consensus is for the Fed to taper quantitative easing in September.”
The Bank of Japan released minutes of its June 10-11 policy meeting today, in which one board member said it’s appropriate for the central bank to limit the period of its monetary stimulus to about two years and review it thereafter. If expectations rise in markets that the measures will continue for a longer period or “extreme” additional steps will be implemented, that would lead to economic instability in the medium-to-long term, the member said.
Declines Reversed
The pound reversed declines after minutes of the Bank of England’s July 3-4 meeting showed officials Paul Fisher and David Miles dropped their call to expand the central bank’s 375 billion-pound ($570 billion) quantitative-easing program instituted in 2009. They rallied to Carney’s policy of a “mixed strategy” involving guidance on the path of interest rates, ending months of split decisions within the nine-member Monetary Policy Committee.
The pound rose 0.3 percent to 86.55 pence per euro after touching 87.11, the weakest level since March 13. Sterling gained 0.2 percent to $1.5186.
“It’s encouraging to see further signs of confidence from the BOE,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “Not before time, the green shoots are visible in a market position short the pound.” A short position is a bet an asset’s value will fall.
Canada’s currency weakened 0.3 percent to C$1.0396 per U.S. dollar after gaining 0.6 percent yesterday. Bank of Canada Governor Stephen Poloz will keep the benchmark interest rate at 1 percent today as he releases his inaugural monetary policy report, according to a Bloomberg survey of 20 economists.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
