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Bloomberg - Dollar Rises Most in 4 Weeks as Fed Ends Buying on Labor
Wednesday, 29 October 2014
The dollar gained the most in almost four weeks after Federal Reserve officials confirmed they will end their bond-purchase program amid improved labor-market conditions.
Traders pushed up odds for an interest-rate cut next year even as the Fed maintained its pledge to keep borrowing costs low for a “considerable time” after the quantitative-easing strategy ends. The greenback fell the past three days versus a basket of peers as reports showed home sales rose less than forecast and durable-goods orders unexpectedly dropped.
“The statement sounds more upbeat on the jobs outlook,” said Sireen Harajli, a Mizuho Bank Ltd. strategist in New York. “The dollar’s reaction indicates that markets were looking for a more neutral statement than what we saw today.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, climbed 0.6 percent to 1,069.93 as of 2:33 p.m. in New York, the biggest jump since Oct. 3. It earlier dropped 0.2 percent.
“Labor-market conditions improved somewhat further, with solid job gains and a lower unemployment rate,” the Federal Open Market Committee said today in a statement in Washington. “A range of labor market indicators suggests that underutilization of labor resources is gradually diminishing,” the panel said, modifying earlier language that “there remains significant underutilization of labor resources.”
The odds of borrowing costs going up by October 2015 rose to 61 percent, from 51 percent before the Fed announcement, based on futures prices.
Dollar Positive
“The market absorbed the statement as being positive for the dollar,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a telephone interview. “If labor and inflation metrics continue to improve at this pace, then we’ll see a rate hike. I can see a rate hike in the first half based on the statement and the labor metrics.”
The dollar index had been headed for its first monthly decline since June on concern slowing global growth and rising risks of disinflation will spill over into the world’s biggest economy, prompting traders to push back on their bets on the timing of the Fed’s rate increase. Policy makers have kept their key interest rate at zero to 0.25 percent since December 2008.
Data this month also showed retail sales declined in September. Before the official release tomorrow, economists surveyed by Bloomberg project 3 percent growth last quarter, down from 4.6 percent in the previous three months.
The U.S. economy will expand 2.2 percent this year and 3 percent in 2015, according to another Bloomberg survey. The euro area will grow 0.8 percent and 1.2 percent, while Japan’s economy will expand 1 percent in 2014 and 1.2 percent the following year, the surveys predict.
From: Bloomberg
