Dollar Trades Near 6-Year High Versus Yen as Fed Begins Meeting

By Kristine Aquino Sep 16, 2014 11:20 AM GMT+0530 BLOOMBERG

The dollar traded near the highest in six years versus the yen as investors weighed the timing for the Federal Reserve’s first interest-rate increase since 2006 before policy makers begin a two-day meeting today.
A gauge of the U.S. currency against its major counterparts was near a 14-month high. Japan’s currency rallied briefly today against the greenback as a technical indicator signaled recent losses were excessive. Australia’s dollar fell along with Asian stocks, reversing earlier gains that came after minutes of the Reserve Bank’s September policy meeting said interest rates should remain stable. The pound weakened versus most peers before Scotland votes on its independence this week.
“We’re still looking for a stronger and supported U.S. dollar over time,” said Emma Lawson, a senior currency strategist at National Australia Bank Ltd. in Sydney. “You are seeing a general pickup in economic growth.”
The dollar was unchanged at 107.19 yen as of 6:47 a.m. in London after falling as much as 0.2 percent. It touched 107.39 on Sept. 12, the highest since September 2008. The dollar was little changed at $1.2942 per euro after climbing 0.2 percent yesterday. The yen traded at 138.73 per euro from 138.70. Japan’s markets reopened today after a holiday yesterday.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, was little changed at 1,050.83 after rising to 1,052.14 yesterday, the highest since July 2013.

Fed Bets

Fed funds futures data compiled by Bloomberg showed traders saw a 78 percent chance yesterday U.S. policy makers will raise the target for overnight loans between banks by their September 2015 meeting, up from 73 percent on Sept. 1. The rate has been in a range of zero to 0.25 percent since December 2008.
Reports this month showed manufacturing and services growth in the world’s biggest economy accelerated in August, while the trade deficit narrowed in July.
The 14-day relative strength index for the yen versus the dollar was at 19, below the 30 level that signals to some traders an asset has fallen too far, too fast, and may be due to reverse course.
“Dollar-yen has had a very strong rally on the back of very hawkish expectations from the FOMC this week,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “It looks like consolidation ahead of the FOMC,” she said, referring to the Federal Open Market Committee.

Forecasts Raised

JPMorgan Chase & Co. said in a report today it sees the dollar climbing to 109 yen by the fourth quarter, up from a previous forecast of 106. It predicts the euro will rise to 142 yen over the same period, compared with a previous estimate of 138. The median projections in Bloomberg surveys of analysts put the dollar at 106 yen and the euro at 138 yen by Dec. 31.
The dollar has risen 3.5 percent in the past month, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has fallen 1.8 percent, the biggest decline within the gauges. The euro has lost 0.5 percent.
The Aussie weakened as a decline in equities sapped demand for higher-yielding assets. The MSCI Asia Pacific Index of shares lost 0.3 percent.
Minutes published today of the Reserve Bank of Australia’s Sept. 2 meeting, when it kept the benchmark rate at 2.5 percent for a 12th-straight gathering, showed policy makers “considered that the most prudent course was likely to be a period of stability in interest rates.”

Aussie Decline

RBA Assistant Governor Christopher Kent said a further decline in the currency would support demand for local producers that compete with imports, in the text of a speech today at the Bloomberg Summit in Sydney.
The Aussie fell 0.2 percent to 90.08 U.S. cents after climbing as much as 0.3 percent. It declined yesterday to 89.84, the lowest since March.

The pound held a loss from yesterday before Scotland’s Sept. 18 referendum on its independence.
Scotland’s nationalists have a 45 percent chance of winning the referendum this week and there’s a risk of a capital flight from the country if that happens, according to a Bloomberg survey of economists.
Sterling slipped 0.1 percent to $1.6219 from $1.6233 yesterday, when it dropped 0.2 percent.
To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Naoto Hosoda, Jonathan Annells