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Bloomberg - Dollar Gauge Falls to Lowest in 5 Months After Fed; Lira Drops
Wednesday, 09 April 2014
The dollar fell to the weakest level in more than five months versus a basket of peers after several Federal Reserve policy makers said projections for an interest-rate rise were overstated in minutes from its last meeting.
Turkey’s lira slid versus all but one of its 31 major counterparts as the government of Prime Minister Recep Tayyip Erdoganis pushes for interest-rate cuts. The krona dropped versus the euro as Sweden’s central bank signaled a greater chance that it will ease monetary policy. The yen declined against most major currencies after its biggest rally yesterday versus the dollar since August.
“The market’s grabbed onto the line that says the forecasts overstated the rate-rise pace,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc, said in a phone interview. “The dollar weakened a bit on the back of that seemingly dovish message, although I think the market is reading a little bit too much into it.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, fell 0.3 percent to 1,005.47 as of 2:37 p.m. in New York, for a fourth straight decline. It touched 1,005.10, the lowest since Oct. 30.
The yen was little changed at 101.82 per dollar after dropping 0.4 percent, the biggest decline since April 1. It gained 1.3 percent yesterday. Japan’s currency depreciated 0.4 percent to 141.01 per euro a day after jumping 0.9 percent. The dollar slid 0.4 percent to $1.3849 per euro.
Fed Outlook
“Several participants noted that the increase in the median projection overstated the shift in the projections,” the minutes of the March 18-19 Federal Open Market Committee meeting showed. Some expressed concern the rate forecasts “could be misconstrued as indicating a move by the committee to a less accommodative reaction function.”
The Bloomberg Dollar Spot Index rallied 0.8 percent after Yellen said after the last meeting that the central bank may start to increase interest rates “around six months” after ending its asset-buying program. The U.S. central bank cut monthly bond purchases by $10 billion to $55 billion.
The Fed is winding down the stimulus program it has used to support the economy, while keeping its target for overnight lending between banks in a range of zero to 0.25 percent since 2008.
“The key take-away is the market definitely jumped the gun on Yellen’s comment following the last FOMC meeting,” Ken Wills, a currency strategist in Toronto at broker USForex, said in a phone interview. “The minutes convey unity in regards to the ongoing dovish tone of the Fed.”
Lira, Krona
The lira retreated the most in a month against the dollar as Economy Minister Nihat Zeybekci, speaking in interview with NTV television, said the reasons that led the central bank to raise interest rates in January no longer exist.
Turkey’s currency fell 0.5 percent to 2.1204 versus the dollar, snapping three days of gains, after declining as much as 1.3 percent.
Sweden’s krona snapped two days of gains versus the euro, weakening 0.2 percent to 8.9821. It gained 0.1 percent to 6.4869 against its U.S. counterpart.
Riksbank policy makers held the repurchase rate at 0.75 percent for a second meeting, the Stockholm-based central bank said today in a move that was predicted by 19 of 21 economists surveyed by Bloomberg. The rate is projected at 0.66 percent in the third quarter, 0.65 percent in the final three months of 2014 and 0.73 percent by the end of March 2015.
Won Gains
South Korea’s won appreciated as Finance Minister Hyun Oh Seok told reporters today that the government is more concerned with market volatility than the level of the currency. Exporters have become less vulnerable to changes in the level of the won, he said.
The won gained 1 percent to close at 1,041.55 per dollar in Seoul after appreciating to 1,040.46, the strongest level since August 2008.
UBS AG’s V24 Carry Index climbed to the highest level since April 2013 yesterday, signaling increased gains for those who borrow in low interest-rate currencies to buy assets with higher yields. The index closed at 445.67, the most since April 12, 2013. It has risen 4 percent this year.
“The carry trade in various guises is currently in vogue,” Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney, wrote today in a research note. “Let’s not forget the Fed continues to print some $3 billion per working day to facilitate the process.”
The Deutsche Bank FX Volatility Index dropped for a ninth day, falling 10 basis points, or 0.10 percentage point, to 6.51 percent. The gauge, which measures expectations for swings in nine major currency pairs for the coming three months, is headed for its lowest close since July 2007.
‘Shell-Shocked’
The yen jumped against the dollar yesterday as Bank of Japan Governor Haruhiko Kuroda said the labor market has improved more than was earlier expected. The BOJ left its target for the yearly expansion of the monetary base at 60 trillion yen to 70 trillion yen after ending its two-day meeting in Tokyo, as forecast in a Bloomberg News survey of analysts.
“Yesterday’s sharp yen advance still has traders a bit shell-shocked,” Marc Chandler, the global head of currency strategy in New York at Brown Brothers Harriman & Co., wrote in a client note. The yen’s 102 level versus the dollar, higher U.S. yields and an increase in stock markets may support Japanese equities tomorrow, he said.
From: http://www.bloomberg.com/news/2014-04-09/yen-falls-as-stock-gains-boost-higher-yielding-assets-won-rises.html
