Dollar Weakens as 2015 Gains Set Up Chance for Post-Fed Selloff
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(Bloomberg) — A gauge of the dollar fell for the first time in four days on speculation the greenback’s gains this year leave it vulnerable to a short-term selloff as investors prepared for the Federal Reserve to raise interest rates.
The U.S. currency weakened against 12 of its 16 major counterparts with futures signaling a 76 percent probability the Fed will increase its benchmark from near zero at its meeting on Dec. 15-16. A gauge of currency volatility completed it longest stretch of advances since August on Monday as prices slid for commodities and low-rated bonds.
“Markets are just a little bit nervous going into the Fed meeting,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “If anything, the trend for the dollar going into the Fed is a little bit on the soft side, as generally speaking it’s all about justifying the current positioning rather than pushing it further.”
The Bloomberg Dollar Spot Index, which tracks the currency versus 10 counterparts, declined 0.2 percent to 1,224.40 as of 11:11 a.m. Tokyo time. The greenback was down 0.4 percent at 67.89 U.S. cents per New Zealand dollar and touched 67.96, the least since Oct. 27. It weakened 0.2 percent to 72.57 U.S. cents against the Australian currency.
The dollar fell 0.2 percent to $1.1014 per euro, having declined 4 percent this month.
The Fed has said it may raise interest rates for the first time in almost a decade, contrasting with peers in Europe and Japan that are carrying out unprecedented stimulus. The prospect of monetary policy divergence has boosted the dollar more than 8 percent this year, and some of the biggest banks trading in the $5.3-trillion-a-day market are predicting more gains in 2016.
Fed Chair Janet Yellen has emphasized the central bank will follow a gradual path for U.S. interest-rate increases after any initial move. Futures show the federal funds rate will reach 0.78 percent in December 2016, compared with the range of zero to 0.25 percent the Fed has targeted since December 2008.
Economists predict a report on Tuesday will show the U.S. annual-inflation rate rose last month from October, according to a Bloomberg survey. That would further reinforce the idea that economic recovery is translating to consumer-price growth.
The JPMorgan Chase & Co. index of global exchange-rate fluctuations rose for a fifth day on Monday. It reached 10 percent, which is above the five-year average of 9.6 percent.
The U.S. currency weakened against 12 of its 16 major counterparts with futures signaling a 76 percent probability the Fed will increase its benchmark from near zero at its meeting on Dec. 15-16. A gauge of currency volatility completed it longest stretch of advances since August on Monday as prices slid for commodities and low-rated bonds.
“Markets are just a little bit nervous going into the Fed meeting,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “If anything, the trend for the dollar going into the Fed is a little bit on the soft side, as generally speaking it’s all about justifying the current positioning rather than pushing it further.”
The Bloomberg Dollar Spot Index, which tracks the currency versus 10 counterparts, declined 0.2 percent to 1,224.40 as of 11:11 a.m. Tokyo time. The greenback was down 0.4 percent at 67.89 U.S. cents per New Zealand dollar and touched 67.96, the least since Oct. 27. It weakened 0.2 percent to 72.57 U.S. cents against the Australian currency.
The dollar fell 0.2 percent to $1.1014 per euro, having declined 4 percent this month.
The Fed has said it may raise interest rates for the first time in almost a decade, contrasting with peers in Europe and Japan that are carrying out unprecedented stimulus. The prospect of monetary policy divergence has boosted the dollar more than 8 percent this year, and some of the biggest banks trading in the $5.3-trillion-a-day market are predicting more gains in 2016.
Fed Chair Janet Yellen has emphasized the central bank will follow a gradual path for U.S. interest-rate increases after any initial move. Futures show the federal funds rate will reach 0.78 percent in December 2016, compared with the range of zero to 0.25 percent the Fed has targeted since December 2008.
Economists predict a report on Tuesday will show the U.S. annual-inflation rate rose last month from October, according to a Bloomberg survey. That would further reinforce the idea that economic recovery is translating to consumer-price growth.
The JPMorgan Chase & Co. index of global exchange-rate fluctuations rose for a fifth day on Monday. It reached 10 percent, which is above the five-year average of 9.6 percent.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Naoto Hosoda, Nicholas Reynolds
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