FX Concepts’ John Taylor Says Fed’s Easy Money Policy to Weigh on Dollar

John Taylor, founder of currency- hedge fund FX Concepts LLC, said he’s betting against the dollar after Federal Reserve policy makers extended their pledge to keep interest rates close to zero and indicated they’re prepared to make additional asset purchases.

“I am shorter the U.S. dollar than I am the euro,” Taylor said in an interview on Bloomberg Television’s “Inside Track” with Erik Schatzker. “We are going to have QE3 at some point and they stretched the time we are not going to have higher rates. That was a tremendous hit to the dollar. The dollar was doing fine until Bernanke came up with that idea.”

Federal Open Market Committee members said last month the central bank plans to keep its benchmark interest rate at almost zero until at least the end of 2014, extending a prior pledge to hold rates steady through mid-2013. The Fed purchased $2.3 trillion of debt in two rounds of so-called quantitative easing known as QE1 and QE2 as it sought to support the world’s biggest economy. Chairman Ben S. Bernanke said Jan. 25 that he’s considering another program of debt purchases if economic growth proves slower than desired.

“Everybody in the market is sure that whenever the dollar looks strong, Bernanke will come up with another idea to make it weak,” said Taylor, who manages about $4.5 billion in assets.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, dropped today even after the Labor Department said unemployment rate fell and payrolls increased in January. The index fell 0.1 percent to 78.893 at 2:30 p.m. in New York.

Japanese Intervention

Taylor said on Jan. 24 at a Bloomberg Link conference in New York that the euro will probably trade at parity with the dollar by the end of the year. The euro rose 0.1 percent to $1.3161.

The shared currency has dropped 3.5 percent versus the dollar in the last year as the region’s leaders bailed out Portugal after providing rescue packages in 2010 for Ireland and Greece and attempted to rein in rising sovereign-debt yields.

The dollar will weaken against the Japanese yen as well, even if it is temporarily boosted by dollar purchases from the Bank of Japan, said Taylor, who is betting on gains in the currencies of nations such as Turkey, Australia and South Africa.

“The dollar will be under pressure against the yen, but the Bank of Japan is waiting to intervene,” said Taylor, who is based in New York. “At 75 and change, less than a percent from where than we are now, the Bank of Japan will come in and punish us again. But all good traders won’t get punished -- they will wait until the Bank of Japan pushes the dollar way up against the yen and then they’ll sell it again.”

The yen fell 0.4 percent to 76.55 per dollar. It strengthened to 76.03 two days ago, approaching the post-World War II record of 75.35 set on Oct. 31.

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net; Sara Eisen in New York at seisen2@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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