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Bloomberg - Dollar Climbs to Seven-Year High Versus Yen on Policy Divergence
Wednesday, 19 November 2014
The dollar reached a seven-year high against the yen as minutes from the Federal Reserve’s latest policy meeting show the U.S. moving toward higher interest rates while Japan pursues further economic stimulus.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, briefly pared gains as Fed policy makers discussed monitoring the public’s inflation expectations. The yen slid versus most of its 31 major peers as the Bank of Japan maintained record stimulus after Prime Minister Shinzo Abe called an early election. New Zealand’s dollar ended a six-day advance as the price of milk powder fell.
“That dominant theme is likely to linger for quite some time, U.S policy divergence,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “We’re just going to have to wait until the next Fed meeting to really gain clues on when the Fed might raise rates.
The dollar rallied 0.9 percent to 117.85 per yen as of 2:38 p.m. New York time, after touching 117.94, the weakest level since October 2007. Japan’s currency slid 1 percent to 147.97 per euro and touched 148.12, the least since October 2008. The 18-nation euro added 0.1 percent to $1.2554.
Bloomberg’s dollar spot index rose 0.3 percent to 1,097.37. It closed at 1,097.86 on Nov. 6, the highest since April 2009.
Swiss Poll
Australia’s dollar lost the most of its U.S. counterpart’s 16 major peers, slipping 1.2 percent, after central bank Governor Glenn Stevens said yesterday that there was a ‘‘pretty material risk” that the currency will go lower than its current level.
New Zealand’s currency slumped 0.8 percent to 78.61 U.S. cents to halt a six-day advance. The so-called kiwi, named for the image of the flightless bird on its NZ$1 coin, dropped versus most its 16 major peers as the average price for whole milk powder fell to $2,400 a metric ton from $2,522 at the previous auction.
The Swiss franc briefly fell after a poll showed voters rejecting a Nov. 30 referendum on requiring Switzerland’s central bank to hold at least 20 percent of its assets in gold. The currency declined as much as 0.1 percent versus the euro before trading little changed at 1.20131, almost at the Swiss National Bank’s 1.20 cap.
The pound was the day’s biggest gainer, strengthening after minutes from the Bank of England’s latest meeting showed policy makers beginning to raise concern that inflationary pressures may build.
Pound Gains
“Investors are reducing short-sterling positions on the BOE minutes,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “There was an expectation of greater dovishness.” A short position is a bet an asset’s price will decline.
The pound rose 0.3 percent to $1.5683.
The BOJ kept a plan unchanged to expand its monetary base by a record annual pace of 80 trillion yen ($680 billion). The central bank’s easing program has pushed down the whole yield curve, Governor Haruhiko Kuroda told reporters today.
A yield curve is a chart showing rates on bonds of different maturities.
Kuroda warned inflation could fall below 1 percent after a report this week showed the world’s third-largest economy slid into recession. The central bank is targeting price gains of 2 percent.
Yen Trend
“Everything is pointing to further weakening,” said Fabian Eliasson, who works in foreign-exchange sales at Mizuho Financial Group Inc. in New York. “They’ve been fairly adamant about putting another round of easing on the table and I think a lot has to do with the election and that they get support to continue this program.”
The U.S. central bank ended its bond-buying program last month, and cited an improving job market. The minutes showed a wide-ranging debate over whether to retain the committee’s pledge to keep interest rates near zero for a “considerable time.” The panel ultimately adopted the suggestion from some participants to add wording emphasizing the timing on rate increases would depend on incoming economic data.
“Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations,” according to a record of the Oct. 28-29 meeting released in Washington. “Some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered.”
“While most of the commentaries seem pretty neutral and in line with the statement we saw last month, it does highlight most of the Fed’s objectives have been met,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a telephone interview. “Most of the volatility will come from foreign development -- that goes to political situation in Japan at the moment.”
The Fed meets Dec. 16-17.
From: Bloomberg
