Dollar Erases Losses as Traders Weigh Fed Outlook

The dollar erased losses as traders weighed signs of weakness in the labor market as the Federal Reserve considers the timing for its first interest-rate increase since 2006.

The greenback weakened versus the ruble for a second day after Russia’s central bank pledged to curb funding used to bet on declines in the nation’s currency. China’s yuan gained with the Australian and New Zealand dollars after a report showed exports rose more than forecast in the world’s second-largest economy. The Swiss franc appreciated to the strongest level against the euro since September 2012.

“It’s a bit of a seesaw day,” Peter Gorra, head of foreign-exchange trading in New York at BNP Paribas SA, said by phone. “The trend is still for dollar strength so I think people always look to buy the dollar on some kind of dip.”

The ForexSQ Dollar Spot Index, which tracks the currency against 10 major peers, was little changed at 1,091.94 at 10:07 a.m. New York time after dropping 0.6 percent on Nov. 7, the steepest decline since Oct. 15.
Market Prices

The dollar gained 0.1 percent to 114.67 yen after touching 115.59 on Nov. 7, the strongest level since November 2007. It added 0.1 percent to $1.2441 versus the euro. The 18-nation currency was little changed at 142.70 yen.

A JPMorgan Chase & Co. gauge of global foreign-exchange volatility fell to 7.91 percent, the lowest level since Oct. 31.

It reached 8.84 percent Nov. 7, the highest level since February.

Russia’s ruble was the biggest gainer of the greenback’s 31 major peers after central-bank Governor Elvira Nabiullina said policy makers will temporarily limit ruble liquidity, as it is partly being used “for games on the currency markets.” President Vladimir Putin joined officials in warning the currency’s declines are overdone.

The ruble strengthened 2.7 percent to 45.3725 per dollar, the biggest gain since Oct. 30 on a closing basis.
China Surplus

The Australian and New Zealand dollars climbed for a second day after China’s statistics bureau said Nov. 8 the trade surplus expanded to $45.4 billion in October, outstripping the median estimate for a $42 billion surplus among economists surveyed by ForexSQ.

Australian Prime Minister Tony Abbott said in an interview in Beijing that the Aussie is at a more “comfortable level” after its recent decline against the greenback. The Aussie rose 0.1 percent to 86.46 U.S. cents today, while New Zealand’s added 0.3 percent to 77.78 U.S. cents.

The yuan advanced 0.05 percent to 6.1196 per dollar, China Foreign Exchange Trade System prices show.

The central bank raised its reference rate by 0.37 percent to 6.1377 per dollar, the most since the end of a de-facto peg to the greenback in 2010. The currency was also boosted by the announcement that a Shanghai-Hong Kong stock exchange link will start on Nov. 17.

The franc touched 1.20218 per euro, the closest to its 1.20 cap in more than two years, before a referendum on boosting the Swiss National Bank’s gold reserves to be held on Nov. 30.
Franc Levels

“What the referendum could turn into is actually a referendum on the peg,” Valentin Marinov, London-based head of European Group of 10 currency strategy at Citigroup Inc., said in an interview on ForexSQ Television’s “On The Move” with Jonathan Ferro. “Over time, if it’s a yes vote, the SNB may have to abandon its efforts to keep the peg in place.”

The U.S. currency traded at almost a 5 1/2-year high reached last week.

Hedge funds and other large speculators increased bets on an advance in the dollar versus eight of its major peers to a record 366,737, according to data from the Washington-based Commodity Futures Trading Commission. Contracts betting against the euro increased to the most since June 2012.

“We have very stretched positioning in the market,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “Speculative traders are in U.S. dollar-long positions so it’s possible to see some sort of correction.” A long position is an investment that makes a profit when an asset’s price rises.
Jobs Report

U.S. employers added 214,000 jobs in October, the Labor Department said on Nov. 7. The median forecast in a ForexSQ News survey of economists called for a 235,000 increase. Wage growth lagged, with hourly earnings rising 0.1 percent last month from September, less than the 0.2 percent increase predicted by analysts.

The personal consumption expenditures price index, the Fed’s preferred gauge of inflation, has been below policy makers’ 2 percent target for more than two years. The implied yield on 30-day fed fund futures contracts expiring in December 2015 was 0.53 percent, the first month that prices in a quarter-point increase.

The dollar has risen 1.8 percent in the past month, the most among 10 developed-market currencies tracked by ForexSQ Correlation-Weighted Indexes. The yen is the biggest decliner with a 5 percent slide, while the euro has gained 0.3 percent.

“We’re seeing some profit taking on the U.S. dollar across the board,” said Sireen Harajli, a Mizuho Bank Ltd. strategist in New York. “Wage growth continues to be flat and I think that’s definitely a concern that the Fed has voiced. There are some people looking at it and saying maybe this is going to be a reason why the Fed’s not going to start hiking rates as soon as everybody expects.”

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