Dollar Rises to 5-Year High on Fed Rate Outlook; Yen Declines
Washington (Dec 19) The dollar advanced to a five-year high against a basket of currencies with the Federal Reserve suggesting this week that policy makers may raise interest rates in the first half of next year as the U.S. economy accelerates.
The greenback is headed for gains against all except one of its 31 major counterparts this year, a feat it hasn’t accomplished since 1997, as the Fed looks to raise borrowing costs ahead of global peers. The yen fell today to a more than one-week low against the greenback after the Bank of Japan maintained unprecedented monetary stimulus. The euro slid for a third day, Canada’s dollar approached a five-year low and a gauge of Asian currencies fell almost to the least since 2010.
“The U.S. dollar looks like the safest currency,” Geoffrey Yu, a senior currency strategist at UBS Group AG in London, said by phone. “If you look at price action, if you look at positioning, it looks like people don’t want to own anything else.”
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.4 percent to 1,125.51 as of 3:13 p.m. in New York, set for a 0.9 percent gain this week. It’s headed for its the highest close since March 2009.
The greenback climbed 0.5 percent to $1.2225 against the euro after earlier touching $1.2220, the strongest since August 2012. The dollar increased 0.6 percent to 119.49 yen and touched 119.62, the highest since Dec. 10. Japan’s currency fell 0.1 percent to 146.11 per euro.
The dollar has advanced at least 2 percent versus all of its main counterparts this year except the Hong Kong dollar, a currency pegged to the greenback and which is little changed. The greenback last accomplished this feat in 1997, when another currency tied to it at the time, China’s yuan, managed a 0.23 percent gain.
Asia Slide
JPMorgan Chase & Co.’s Global FX Volatility Index was poised to end the week 17 basis points, or 0.17 percentage point, higher at 9.82 percent, having touched 10.12 percent yesterday, the highest since September 2013. It has risen from a record-low 5.28 percent in July.
India’s rupee slid to a 13-month low this week, leading a retreat in Asian currencies as Russia’s financial crisis and declining oil prompted investors to favor safer bets than emerging-market assets. The rupee fell 0.3 percent today against the dollar and 1.6 percent since Dec. 12.
The Bloomberg JP Morgan Asia Dollar Index fell for a third day after touching 112.59 yesterday, the lowest since September 2010.
‘Very Nervous’
The ruble gained, trimming a fourth weekly decline, as a short-term cash crunch exacerbated by the surprise interest-rate increase three days ago spurred demand. The currency climbed 3.7 percent to 59.25 per dollar.
“People are still very nervous -- I think there’s still some fear of capital outflows,” Jane Foley, senior foreign-exchange strategist at Rabobank International in London, said in a radio interview on “Bloomberg Surveillance.”
The Canadian dollar approached a five-year low after a report showed inflation slowed more than forecast in November. It weakened 0.2 percent to C$1.1597 per U.S. dollar.
The yen has slumped about 9 percent against the dollar since Oct. 30, the day before the Bank of Japan unexpectedly boosted stimulus.
“We expect the yen to weaken” to 130 per dollar by the end of next year, Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam, said by phone. “We expect the bank of Japan to support the economy and push up inflation.”
As Forecast
The BOJ will boost its monetary base at an annual pace of 80 trillion yen, it said in a statement after a meeting in Tokyo, a decision forecast by all 33 economists surveyed by Bloomberg News. The economy is expected to continue a moderate recovery as the effects of an April sales-tax increase dissipate, the BOJ said.
“If you look at the scale of BOJ easing against a normalization of Federal Reserve policy and a rate-hiking cycle, it stands to reason that dollar-yen should trade at significantly higher levels,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “I won’t be surprised to see us trading toward 125-127 over the course of the first six months of next year.”
The Bloomberg Dollar Spot Index headed for its eighth gain in nine weeks after the Fed signaled at its Dec. 16-17 policy meeting that it was on course to raise interest rates next year.
After the meeting, Fed Chair Janet Yellen laid out the economic parameters that would need to be met for liftoff.
The dollar has strengthened 12 percent in 2014, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 1.6 percent and the yen weakened 2.7 percent.
Source: Bloomberg
