Dollar rises as investors focus on Fed policy
NEW YORK (Aug 13) The U.S. dollar rose against major rivals Monday, recovering from a weekly loss, as investors continued to guess when the Federal Reserve would begin to slow its monthly asset purchases.
The dollar +1.1374% bought 96.66 yen in recent trade, higher than ¥96.21 late Friday in North America.
The euro -0.0128% fell to $1.3308 from $1.3340 on Friday. The European currency rose 0.5% last week.
The British pound also dipped against the dollar, falling to $1.5471 from $1.5505.
The dollar has struggled against other major currencies since Fed Chairman Ben Bernanke said the central bank wasn’t in a rush to raise interest rates in mid-July, knocking the ICE dollar index off its 2013 high of 84.58.
Further weakness was evident after the U.S. Labor Department reported on Aug. 2 that the economy created 162,000 jobs in July. That was less than expected, adding uncertainty as to when the Federal Reserve would slow the pace of its bond purchases that have been seen as pressuring the dollar’s value.
But Steven Englander, global head of G10 FX strategy, said the market isn’t adequately pricing in what a slowing of asset purchases from the Fed would mean.
“The market is underpricing the degree to which this opens up the possibility that the Fed will hike [rates] down the road,” he said. “The FX market specifically is not paying enough attention to the strength of the U.S. economic data.”
Forward-looking indicators have been more positive, which means “we could actually end up with a pretty robust economy,” added Citi’s Englander.
U.S. data scheduled for release this week include retail sales and housing starts for July. Also, Atlanta Federal Reserve Bank President Dennis Lockhart and St. Louis Fed President James Bullard are scheduled to speak.
The ICE dollar index +0.13% , which tracks the U.S. currency’s movement against six rivals, rose to 81.331 from 81.131 late Friday. The index fell about 1% last week.
Foreign-exchange action on Monday was “modestly skewed” toward dollar strength, wrote Stephen Gallo, European head of FX Strategy at BMO Financial Group in London, adding that volumes were low.
“Importantly, this [dollar] strength comes on the heels of a week in which Fed speak, on balance, seemed biased towards Fed tapering rather than Fed stimulus,” said Gallo in a note.
