The Bloomberg U.S. Dollar Index snapped a three-day gain after rising the most in almost eight weeks yesterday. The Fed will keep purchases of Treasuries at $45 billion and mortgage-backed securities at $40 billion, according to economists surveyed by Bloomberg. The euro rose for a fifth day versus the yen after Spain exited a two-year recession. Norway’s krone strengthened after the central-bank governor said he was comfortable with falling house prices.
“With expectations having settled on March or April for the start of tapering, there’s little reason for the Fed to stick its neck out today,” said Adam Cole, head of Group-of-10 currency strategy at Royal Bank of Canada in London. “The bulk of currency managers’ positioning is still located in long dollar-yen positions. That doesn’t mean those positions have to unwind but that is a risk as we get to year-end.” Long positions are bets currencies will gain in value.
The dollar gained 0.1 percent to 98.26 yen at 6:37 a.m. London time after rising to 98.31, the highest since Oct. 22. The U.S. currency fell 0.1 percent to $1.3759 per euro. The common currency advanced 0.2 percent to 135.19 yen after reaching 135.51 on Oct. 22, the strongest since November 2009.
The dollar will decline to 92 yen by year-end, RBC’s Cole predicted.
The Bloomberg Dollar Index, which monitors the currency against 10 major counterparts, fell 0.1 percent to 1,004.92 after rising 0.4 percent yesterday, the most since Sept. 5.
A measure of price swings among the currencies of Group of Seven nations increased for a fourth day. The JPMorgan G7 Volatility Index rose 0.5 percent to 7.84 percent after sliding to 7.48 percent on Oct. 28, the lowest since Dec. 21.
The Fed will wait until its March meeting to taper stimulus, according to a Bloomberg News survey of economists on Oct. 17-18. The purchases, made to push down long-term yields and spur growth, tend to debase the dollar. Policy makers refrained from slowing stimulus last month to await further evidence of economic recovery.
U.S. companies added 150,000 workers this month after hiring 166,000 in September, according to the median estimate of economists surveyed by Bloomberg before the ADP Research Institute releases the data today. The Labor Department said last week that U.S. payrolls grew by 148,000 in September, versus the median forecast of 180,000 in a Bloomberg survey.
The dollar’s recent resilience will face an “interesting test” if the Fed’s post-meeting statement suggests tapering could be delayed further into 2014, David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne, wrote today in a research note.
The euro strengthened versus the yen after Spain’s National Statistics Institute said gross domestic product grew 0.1 percent in the third quarter compared with the previous three months, when it declined 0.1 percent.
A separate report showed economic confidence in the euro-area rose more in October than analysts forecast, adding to signs the single-currency bloc’s recovery is gaining momentum.
“Euro has been one of the beneficiaries of a weaker dollar,” said Robert Rennie, global head of foreign-exchange and commodity strategy at Westpac Banking Corp. in Sydney. If the currency trades above $1.38, the market will start to worry that the European Central Bank may be unhappy with the pace of recent gains, he said.
The krone advanced for a second day versus the dollar after Norges Bank governor Oeystein Olsen said he will avoid policies that drive up the property market.
“The comments remove one of the big obstacles for the Norwegian krone,” Morten Helt, a senior analyst at Danske Bank A/S in Copenhagen, wrote in a note to clients. “The risk of Norges Bank turning even more dovish than they already are should be relatively small.”
Norwegian retail sales increased 0.7 percent last month and the jobless rate fell to 3.5 percent in August, government data showed today.
The krone climbed 0.5 percent to 5.8688 per dollar, the biggest advance since Oct. 18. The currency rose 0.4 percent to 8.0718 per euro.
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