Dollar Rises to 11-Month High as Fed Consider Exit Pace

Frankfurt (Aug 20)  The dollar strengthened to an 11-month high versus the euro after minutes of the Federal Reserve’s July meeting showed policy makers raised the possibility that the central bank may increase interest rates sooner than anticipated.

A gauge of the U.S. currency reached a six-month high as the Fed came closer to agreement on an exit strategy from aggressive monetary stimulus. New Zealand’s dollar declined on speculation economic growth is waning. JPMorgan Chase & Co.’s Global FX Volatility Index rose to 6.16 percent, up from an all-time low on a closing basis of 5.29 percent on July 3.

“These minutes is really a turning point, the Fed has moved from a dovish bias to a more-hawkish bias,” Douglas Borthwick, the head of foreign exchange at New York brokerage Chapdelaine & Co., said by phone. “What’s really important about the statement is it’s now a two-way bet. Now knowing the Fed can be dovish or hawkish, that’ll lead to more volatility.”

The U.S. currency gained 0.4 percent to $1.3266 per euro as of 2:26 p.m. in New York, after appreciating to $1.3256, the strongest level since Sept. 13. The greenback climbed 0.7 percent to 103.68 yen after reaching 103.75, the most since April 4. The euro rose 0.3 percent to 137.52 yen.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, advanced 0.4 percent to 1,027.79, reaching the highest level since Feb. 5.

Fed Policy

“Many participants noted that if convergence toward the committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated,” the Fed minutes said.

There was no discussion of the timing of a rate increase in the minutes. Fed officials have forecast that it would occur some time next year. The central bank has kept its benchmark rate at almost zero since December 2008.

“Data has been increasingly positive to the point Fed can no longer ignore,” Omer Esiner, chief market analyst at currency brokerage Commonwealth Foreign Exchange Inc. in Washington, said in a phone interview. “We’re seeing a gradual move towards a balanced policy stance between the doves and hawks within the Fed.”

Fed Chair Janet Yellen is scheduled to speak Aug. 22 at a conference of central bankers in Jackson Hole, Wyoming.

South Korea’s won led losses among the 16 major currencies as official data showed the nation’s short-term external debt rose to $131.8 billion by the end of June, the highest since the third quarter of 2012. The won fell 0.4 percent to 1,022.69 per dollar.

Source: Bloomberg