Dollar Climbs Most in Month as Minutes Show Tapering Seen

The dollar had the biggest gain in a month as minutes of the Federal Reserve’s last meeting showed most policy makers said the central bank was likely to reduce the pace of its $85 billion in monthly bond purchases this year.

The U.S. currency rose for a second day versus the yen as President Barack Obama nominated Janet Yellen to run the Fed, fueling bets it will maintain policies to spur economic growth. The minutes of the Federal Open Market Committee meeting, which took place before the Capital Hill deadlock over the budget and debt limit, showed a lengthy debate over economic progress. The pound slid as U.K. industrial production unexpectedly shrank.

“The FOMC minutes appear to have given a boost to the dollar as markets focus on the key headline that most FOMC members see tapering by the end of the year,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “Positions against the dollar have been vulnerable for a while and are starting to unwind.”

The Bloomberg U.S. Dollar Index added 0.3 percent to 1,013.22 at 5 p.m. New York time and jumped as much as 0.6 percent, the biggest intraday advance since Sept. 5. It closed on Oct. 3 at 1,007.87, the lowest since Feb. 20.

The greenback gained 0.5 percent to 97.34 yen and rose as much as 0.8 percent, the most since Sept. 19 on an intraday basis. The dollar appreciated 0.4 percent to $1.3524 per euro and touched $1.3486, the strongest level since Sept. 30. Europe’s shared currency rose 0.1 percent to 131.65 yen.

The JPMorgan Global FX Volatility Index rose to 8.84 percent after falling yesterday to as low as 8.68 percent, the least since May 9. The 2013 average is 9.37 percent.

Aussie Rises

The Australian dollar gained versus most major counterparts on estimates a report tomorrow will show payrolls climbed last month by the most in five months, while the unemployment rate remained at a four-year high of 5.8 percent. The Aussie rose as much as 0.4 percent to 94.64 U.S. cents before trading at 94.45 U.S. cents, up 0.2 percent.

The pound slumped against the dollar and euro after the Office for National Statistics said industrial output in the U.K. dropped in August by 1.1 percent from July, when it gained 0.1 percent. The median forecast of 30 economists in a Bloomberg News survey was for an increase of 0.4 percent.

“There’s a sense of disappointment in today’s data, which has weighed on the pound,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.

Sterling lost 0.8 percent to $1.5954 and touched $1.5916, the weakest since Sept. 18. It dropped 0.5 percent to 84.77 pence per euro and touched 84.87, the weakest since Sept. 3.

Yellen Nomination

Fed Vice Chairman Yellen, 67, must be confirmed by the Senate. She would succeed Chairman Ben S. Bernanke, whose term ends Jan. 31. A White House official said earlier in an e-mailed statement that Obama would nominate her today. At the announcement, the president praised Bernanke for “tremendous courage” in leading the central bank.

“Yellen’s nomination, which was widely expected, is still a risk-positive event,” Dan Dorrow, head of research at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “We’ve got dollar strength against the safe havens.”

Minutes of the Fed’s Sept. 17-18 meeting released today showed most officials said the central bank was likely to slow its bond purchases under the quantitative-easting stimulus strategy this year, even as they unexpectedly refrained from such a move in September, and end the program in mid-2014.

‘Wise’ Decision

The FOMC, acting before this month’s government shutdown, held off tapering bond purchases and indicated budget cuts and an increase in borrowing costs were drags on the expansion. Policy makers wanted to see more evidence of steady growth to combat 7.3 percent unemployment, they said in a statement.

Atlanta Fed President Dennis Lockhart said on Oct. 3 the central bank’s decision was “wise” given the subsequent partial government shutdown.

“We avoided a potentially very awkward situation of reducing stimulus just on the eve of what now has developed,” Lockhart told reporters at a conference in Atlanta.

U.S. borrowing authority lapses on Oct. 17 as congressional Republicans seek spending cuts and changes to the nation’s 2010 health-care law, Obama’s signature legislative achievement.

About 35 percent of investors surveyed this week by Citigroup Inc. expect the dollar to fall more than 10 percent against the euro and yen in the event of a default. About 10 percent expect the greenback to gain more than 10 percent

The greenback lost 1.3 percent over the past month, the worst performance after the Canadian dollar among 10 developed-market currencies tracked by Bloomberg Correlation Weighted Indexes. The euro gained 0.8 percent, the yen rose 2.1 percent.

Technical Levels

The Japanese currency will face further weakness versus the greenback if the pair breaches resistance in the 97.50- to 97.55-yen area on an intraday basis, Roelof-Jan Van den Akker, an Amsterdam-based technical analyst at ING Group NV, wrote today in a client note. The pair will meet support between the 93.90-yen level and its 200-day exponential moving average of 95.53, according to Van den Akker. Resistance and support are chart levels where orders may be clustered.

Trading in over-the-counter foreign-exchange options totaled $30 billion, from $28 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the euro-dollar exchange rate amounted to $5.3 billion, the largest share of trades at 17 percent. Options on the dollar-Mexican peso rate totaled $4.1 billion, or 14 percent.

Euro-dollar options trading was 65 percent more than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Dollar-peso options trading was 340 percent above average.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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