US Dollar Set for Worst Month Since April as Fed Pace Seen Slowing
Frankfurt (Dec 22) A gauge of the dollar headed for its biggest monthly decline since April as investors priced in a measured pace of policy-tightening by the Federal Reserve.
While the U.S. currency has dropped 1.9 percent since November, it’s still about 25 percent higher than its low of 2014. This rally, coupled with tumbling oil prices, has made it tougher for inflation to climb to the Fed’s 2 percent target.
Traders anticipate only a 51 percent chance the U.S. central bank will raise its benchmark rate by April, according to data compiled by Bloomberg based on futures. After increasing the benchmark this month, Fed Chair Janet Yellen signaled the institution would take a gradual approach to additional rate increases as inflation is forecast to remain tame.
Australia’s dollar strengthened for a third day as prospects for additional stimulus from China boosted metals prices.
“We’ve seen quite a lot of dollar strength running up to the Fed meeting and now we are trailing off,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. She said Yellen mentioned that falling oil prices and “the dollar exchange-rate appreciation are still holding down inflation.”
Nguyen said markets understand that “excessive dollar strength is something that the Fed doesn’t want” and might give the central bank a “reason to hold off with further rate hikes.”
Intercontinental Exchange Inc.’s U.S. Dollar Index, which tracks the currency against six major peers, was down 0.1 percent to 98.243 as of 12 p.m. in London. The gauge advanced 4.5 percent during the previous three months, and climbed to 100.51 on Dec. 2, the highest since April 2003. The U.S. currency fell 0.3 percent to $1.0946 per euro and slipped 0.2 percent to 120.95 yen.
Dollar Decline
The dollar is on course for its first monthly decline against the euro since August even as diverging monetary policies on both sides of the Atlantic should support the U.S. currency. The Fed is on course to increase borrowing costs while the European Central Bank is likely to keep its more accommodative policy.
There is growing investor skepticism that the Fed will be able to raise rates four times next year, with commodity prices falling and the global economic outlook still looking fragile.
“If you’re looking at an environment where the Fed is going to be gradual in raising interest rates, maybe the 20-25 percent gain in the U.S. dollar we’ve seen over the last couple of years is it,” Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors Ltd., said in a Bloomberg Television interview. “The best is over for the U.S. dollar for the time being.”
U.S. Growth
A report due Tuesday is forecast to show that the final reading of annualized growth in the three months through September was 1.9 percent in the U.S., according to a Bloomberg survey of economists. This is lower than the initial reading of 2.1 percent.
Currencies tied to Chinese growth including the Australian and New Zealand dollars rose after officials in Asia’s largest economy said monetary policy must be more “flexible” and fiscal policy more “forceful.” The comments were in statements released at the end of the government’s Central Economic Work Conference by the official Xinhua News Agency Monday.
Australia’s dollar gained 0.6 percent to 72.32 U.S. cents, after appreciating 0.9 percent in the previous two days. The kiwi jumped 0.8 percent to 68.16 U.S. cents, set for the biggest one-day gain since Dec. 9.
Source:Bloomberg
