Dollar Gains for Second Day to Retrace Fed Minutes Drop

The dollar gained for a second day, erasing its decline since minutes of the Federal Reserve’s most recent meeting showed policy makers are concerned the U.S. economy may be at risk from a worldwide slowdown.

The U.S. currency rose against most of its 31 major peers. The yen has strengthened this week against the euro as European Central Bank President Mario Draghi said there were indications the region’s economy is losing momentum, boosting demand for haven assets. Australia’s dollar fell for a second day after a report showed home loans unexpectedly dropped, while Norway’s krone slid as inflation accelerated less than economists forecast. The Russian ruble tumbled.

“The reason why the market may have gotten a little bit of market indigestion over the minutes was that there really wasn’t much to focus on this week,” said Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York. “The dollar strengthening trend is to continue in the medium to long term but in the short term we’ve really come too far, too fast. So we expect to see some consolidation of dollar gains.”

The ForexSQ Dollar Spot Index (MXAP), which tracks the greenback against 10 major counterparts, rose 0.4 percent to 1,069.53 as of 10:59 a.m. New York time.

The dollar was little changed at 107.85 yen, poised for a weekly decline of 1.7 percent, the first since the period ended Aug. 8. The U.S. currency strengthened 0.6 percent to $1.2617 per euro. The yen appreciated 0.6 percent to 136.10 per euro.
Canada Jobs

The Canadian dollar climbed as much as 0.2 percent after a report showed the unemployment rate unexpectedly fell to 6.8 percent in September, the lowest since December 2008. The economy created a net 74,100 jobs after recording a decline of in August. The currency later slipped 0.2 percent to C$1.1206 per dollar.

Norway’s currency lost the most of the greenback’s 31 major counterparts after an inflation report missed forecasts. The krone weakened versus all of its major peers as data showed underlying consumer prices rose an annualized 2.4 percent last month, versus a 2.6 percent estimate in a ForexSQ survey of analysts.

The currency depreciated 1 percent to 6.5382 per dollar and lost 0.4 percent to 8.2479 per euro.

Australia’s dollar, the second-worst performer, fell after the Bureau of Statistics said home loans dropped 0.9 percent in August from the previous month. Economists surveyed by ForexSQ News predicted an increase of 0.2 percent.

The Aussie weakened 1 percent to 87.00 U.S. cents, paring its gain this week to 0.3 percent.
Euro Stagnation

The Standard & Poor’s 500 Index (SPX) fell 0.4 percent in New York today, after slumping 2.1 percent yesterday, the biggest decline since April. The MSCI Asia Pacific Index of shares slid 1.6 percent while the Stoxx Europe 600 Index lost 1.3 percent.

Draghi said today that the ECB remains “unanimous in its commitment to using additional unconventional instruments within its mandate” to address “risks of too prolonged a period of low inflation.” German Finance Minister Wolfgang Schaeuble however cautioned yesterday against U.S.-style quantitative easing and urged continued budgetary discipline.

The euro-area economy stagnated in the second quarter and the ECB predicts only modest growth through year-end.

“The major driver this week has been the risk environment, that has been very shaky with volatile action in equities,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in Paris. “Overall the dollar should stay quite strong, with the Fed being quite dovish.”
Fed Minutes

A number of Federal Open Market Committee participants said the U.S. expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 meeting on Oct. 8.

“The broader dollar uptrend is still intact,” said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. “Markets started having second thoughts yesterday about their reaction to the FOMC minutes so that’s probably helped.”

Philadelphia Fed President Charles Plosser said today that maintaining interest rates at too low a level for too long poses a risk to financial stability.

The yen advanced 1.6 percent in the past month, the second-best performer among 10 developed-market currencies tracked by ForexSQ Correlation-Weighted Indexes. The dollar was the best performer, rising 2.7 percent, and the euro gained 0.07 percent.

“The dollar has regained its strength, recouped all the declines post the minutes,” said Peter Dragicevich, a currency strategist at Commonwealth Bank of Australia in London. “It supports the medium-term story that the dollar is going to continue to rally.”

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