Dollar firm, Fed minutes seen highlighting divergence with central bank peers
Washington (Nov 19) The dollar hit a seven-year high against the yen on Wednesday ahead of Federal Reserve minutes that could shed more light on the divergence in monetary policy between the U.S. central bank and its major global peers.
The yen was on the defensive, falling to a six-year trough against the euro, after Japanese Prime Minister Shinzo Abe postponed a sales tax hike in a move seen as supportive for stock markets but negative for the Japanese currency.
The dollar rose as high as 117.65 yen JPY=, its highest level since October 2007, and was last trading at 117.55 yen, up 0.6 percent on the day. The euro was up 0.7 percent at 147.515 yen EURJPY=R, its highest since late 2008.
The yen reacted to the Bank of Japan keeping policy unchanged on Wednesday, as expected.
Focus now turns to the Federal Reserve, which will release minutes of its latest policy review. Traders expect it to sound relatively hawkish, which could lift the dollar index .DXY.
Petr Krpata, currency strategist at ING, said the minutes are likely to reiterate a hawkish tone as reflected in the Fed's statement after its October meeting. The statement after that meeting noted that the labour market was improving and inflation was not likely to stay subdued for long.
"Such a message will likely send U.S. rates and the dollar higher and increase expectations for a more material shift in the FOMC bias at the Dec. 19 meeting," Krpata said.
Meanwhile, the minutes from the Bank of England's November meeting showed a lack of cohesion among those voting to keep rates low for longer. Two of the nine-member committee supporting a rate hike also stuck to their guns despite a softening economic outlook.
Sterling was up 0.3 percent at $1.5680, recovering from a 14-month low of $1.5590 GBP=D4 struck before the minutes.
"Sterling rose as there had been a minority expectation that the vote may have been 8-1," said Adam Cole, head of G10 FX strategy at RBC Capital Markets.
The Australian dollar fell nearly 1 percent to $0.8622 AUD=D4. Much of the Aussie's weakness came after the price of iron ore .IO62-CNI=SI, the country's top export earner, slipped to its lowest in five years.
Source: Reuters
