U.S Dollar Rises on Fed’s Interest Rate Outlook
The dollar approached a record high versus its major peers after the Federal Reserve became the only developed nation central bank considering raising interest rates this year.
The yen pared declines as a slump in Japanese share prices spurred demand for haven assets. The Australian dollar fell to weakest since July 2009 as traders bet the country’s central bank will cut rates at its meeting next week. The U.S. currency gained versus the majority of its 16 major counterparts as the Fed maintained its pledge to be “patient” on the pace of future rate gains.
“With central banks everywhere easing or shifting their biases in that direction, markets are highly sensitive to the global risk factors, and what it does translate to is a desire to be in a safe asset such as the U.S. dollar,” said Sam Tuck, a senior currency strategist in Auckland at ANZ Bank New Zealand Ltd.
The Fxstay Dollar Spot Index, a gauge of the currency’s performance against 10 major peers, rose 0.1 percent to 1,161.30 as of 7:39 a.m. in London. It closed at 1,161.42 on Jan. 26, the highest in data going back to 2004.
The greenback gained 0.1 percent to 117.66 yen and was little changed at $1.1296 per euro. It reached $1.1098 on Jan. 26, the strongest since September 2003. The yen slid 0.2 percent to 132.91 per euro.
The Federal Open Market committee maintained its pledge to be “patient” on raising interest rates after a meeting yesterday. Policy makers noted global risks, saying they will monitor “international developments” when deciding how long to keep rates low.
Fed Outlook
Fed policy makers have kept their interest-rate target in a range of zero to 0.25 percent since December 2008. The chance of an increase to at least 0.5 percent by the Fed’s December meeting was 66 percent, futures data showed, from 86 percent at the end of 2014.
“All roads lead to a higher U.S. dollar,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “The Fed’s the only one that people can see tightening this year.”
The dollar has climbed 8.9 percent in the last three months, the most after the Swiss franc in a basket of 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen is little changed, while the euro slid 3.8 percent.
Japanese Stocks
The yen pared a decline of as much as 0.4 percent as the Nikkei 225 Stock Average tumbled 1.1 percent, the biggest drop in almost two weeks.
The Aussie fell 0.1 percent to 78.83 U.S. cents, after dropping to 78.54, the lowest since July 2009. Swaps traders see 66 percent odds the Reserve Bank of Australia will cut borrowing costs on Feb. 3, setting aside the report on Wednesday that showed underlying quarterly inflation accelerated.
New Zealand’s dollar slid to the lowest level in almost four years, extending a drop from Wednesday, after the nation’s Reserve Bank hinted it is prepared to lower interest rates. The kiwi was little changed at 73.26 U.S. cents, after touching 72.97, the weakest since March 2011.
Australia’s 10-year bond yield fell to a record 2.474 percent before paring its decline to 2.484 percent. The nation’s three-year yield dropped below 2 percent for the first time since 2012.
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