Dollar climbs further on Fed-taper updraft

Los Angeles (Dec 19)   Most major currencies, with the exception of the Japanese yen, fell further against the U.S. dollar on Thursday, as the greenback extended its gains on the back of the Federal Reserve’s long-awaited taper announcement.

The ICE dollar index /quotes/zigman/1652083/realtime DXY -0.10%  , which compares the U.S. unit with six other currencies, rose to 80.559, up from 80.477 late Wednesday in North America and well above Tuesday’s 80.060 level. Likewise, the WSJ Dollar Index increased to 73.89 from 73.79. 

The dollar rode a strong updraft Wednesday after the Fed said it would cut the size of its monthly asset purchases, beginning in January, as the U.S. economy is improving.

While the unwinding of Fed stimulus is generally seen as positive for the dollar, RBC Capital Markets senior currency strategist Sue Trinh said the overall forward guidance offered by the central bank actually pointed to a longer stretch of quantitative easing than many in the market expected.

“Now we know that tapering will begin in January, with likely cuts of $10 billion/meeting, which would bring the program to an end in mid-December [2014]. So not only will QE end a bit later than was previously expected, but the Fed will also buy more than it would have” if it had waited until January but announced a $15 billion-a-meeting taper, Trinh said Thursday.

However, she said that “the dovish interpretation [of the Fed’s guidance] seemed lost on the FX market ... with few currencies outperforming U.S. dollar” in trading following the announcement.

Among the major currency pairs Thursday, the euro eased to $1.3676 from $1.3693, while the British pound  slipped to $1.6378 from $1.6398, and the Australian dollar  bought 88.60 U.S. cents, down from 88.58 U.S. cents.