Dollar Rises to 11-Month High Before Fed Minutes; Pound Advances
Washington (Aug 20) The dollar strengthened to an 11-month high versus the euro before the Federal Reserve releases the minutes of its July meeting, amid speculation policy makers are moving toward raising borrowing costs.
A gauge of the U.S. currency rose to a six-month high before Fed Chair Janet Yellen speaks at Jackson Hole, Wyoming on Aug. 22. Goldman Sachs Group Inc. said it expects further gains in the dollar as money flows out of Europe. The pound strengthened against all of its 31 major peers after the Bank of England said two officials voted for an increase in interest rates at the Aug. 6-7 policy meeting. New Zealand’s dollar declined on speculation economic growth is waning.
“The dollar was appreciating of late based on rising expectations of the Fed turning a little less dovish,” said Manuel Oliveri, a foreign-exchange strategist at Credit Agricole SA’s corporate and investment banking unit in London. “The focus is shifting to Friday’s speech by Yellen and Jackson Hole. There is the notion in the market that she may turn less dovish. That’s one of the reasons why the dollar is in demand.”
The dollar gained 0.3 percent to $1.3279 per euro as of 7:05 a.m. in New York, after appreciating to $1.3275, the strongest level since Sept. 13. The U.S. currency climbed 0.4 percent to 103.32 yen after reaching 103.41, the most since April 7. The euro rose 0.1 percent to 137.21 yen.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, advanced 0.2 percent to 1,025.66. The gauge earlier rose to 1,026.13, the highest since Feb. 7.
The euro may weaken below $1.30 by year-end, Credit Agricole’s Oliveri said.
Yield Search
Monetary policy easing by the European Central Bank “is driving more euro zone residents to search for yield abroad,” Goldman Sachs analysts including New York-based chief currency strategist Robin Brooks wrote in a research note dated yesterday. The picture is supportive of further “downside” for the euro against the dollar, according to the analysts.
ECB President Mario Draghi said at the central bank’s Aug. 7 meeting that risks to the region’s recovery were increasing and the “fundamentals” for a weaker euro were now much better after a barrage of stimulus measures announced in June.
U.S. reports this month have shown employers added more than 200,000 workers for a sixth month in July, while a gauge of manufacturing increased and housing starts quickened.
The dollar has jumped 1.7 percent in the past month, the second-best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 0.4 percent and the yen has declined 0.5 percent.
No Choice
“Investors have no other choice but to buy the dollar after the good housing data pushed stocks and yields higher,” said Junichi Ishikawa, an analyst at IG Markets in Tokyo. “If the minutes today signal the Fed is confident that the economy is steadily recovering and policy makers are discussing the specifics about future policy, that would be taken as hawkish and would support the dollar across the board.”
The Fed cut monthly bond purchases by $10 billion for a sixth consecutive meeting last month to $25 billion.
The pound climbed from a four-month low against the dollar after the Bank of England said Martin Weale and Ian McCafferty voted to increase the benchmark rate by 25 basis points from a record-low 0.5 percent, according to the minutes of the Monetary Policy Committee’s most recent meeting. It marks the first split on borrowing costs in more than three years.
Sterling rose 0.2 percent to $1.6645. It traded at $1.6602 before the minutes were published, the lowest since April 7. The U.K. currency appreciated 0.5 percent to 79.79 pence per euro.
Source: Bloomberg
