Dollar Gains Versus Major Peers on Fed Taper in Coming Months

The dollar rose against most major peers as Federal Reserve officials said they might reduce their $85 billion in monthly bond purchases “in coming months” as the economy improves, minutes of their last meeting show.

The euro dropped from a four-year high versus the yen as the European Central Bank is considering a negative deposit rate if more economic stimulus is needed, according to two people with knowledge of the debate. The yen strengthened as a panel said Japan’s government-run pension fund needs restructuring.

“The Fed came across less dovish,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in phone interview. “The market is caught in this tug of war on the time line for a taper, so less-dovish minutes give a little more leverage to the camp in the market that expects the Fed to taper policy by March or sooner. That has increased the tailwind we’ve seen on the dollar.”

The Bloomberg U.S. Dollar Index, which monitors the greenback against 10 major peers, increased for the first time in four days, adding 0.4 percent to 1,019.07 yen at 5 p.m. in New York.

The euro declined 0.8 percent to 134.43 yen after earlier touching 135.95, the strongest level since October 2009. The shared currency fell 0.7 percent to $1.3439. The dollar slid 0.1 percent to 100.03 yen.

Rand, Ruble

The South African rand advanced versus all 16 of its most-traded counterparts after consumer-price inflation slowed to 5.5 percent last month from 6 percent in September. The median estimate in a Bloomberg survey was 5.7 percent. The currency appreciated 0.3 percent to 10.1507 per dollar after earlier rising 1.3 percent, the biggest climb since Sept. 18.

Russia’s ruble fell versus the majority of its 31 major peers as Bank Rossii revoked the license of Moscow-based retail bank OAO Master-Bank for repeatedly breaching money laundering laws. The currency depreciated 0.6 percent to 32.9020 per dollar after falling to 32.9248, the lowest level in a week.

The Chilean peso decreased versus the majority of its emerging-market counterparts after the country’s central bank cut its target lending rate by 25 basis points to 4.50 percent. The currency slid 0.5 percent to 522.26 per dollar after reaching 524.50, its weakest since December 2011.

‘Ongoing Improvement’

Fed policy makers “generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months,” according to the record of the Federal Open Market Committee’s Oct. 29-30 gathering, released today in Washington.

The dollar strengthened as Federal Reserve Bank of St. Louis President James Bullard, a voter on policy this year who has backed record stimulus, said during a Bloomberg Television interview that tapering is “definitely on the table, but it’s going to depend on the data.”

Fed Chairman Ben S. Bernanke said yesterday the central bank was committed to highly accommodative policies, echoing recent comments from other Fed officials including Vice Chairman Janet Yellen, who has been nominated to succeed him.

“Bernanke and Yellen remain very consistent with each other that rates in the U.S. are going to remain low for a long time,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and rates risk-management company. “I do think the story is dollar weakness. I would say sell the U.S. dollar across the board.”

Delayed Taper

Four of five investors expect the Fed to delay a decision to begin reducing its bond buying until March 2014 or later, with just 5 percent looking for a move next month, according to the latest Bloomberg Global Poll. Policy makers meet Dec. 18-19.

The greenback declined earlier as the consumer-price index dropped 0.1 percent, reflecting cheaper energy, clothing and new cars, after a 0.2 percent gain the prior month, a Labor Department report showed. The median forecast of 85 economists surveyed by Bloomberg called for no change.

ECB policy makers are considering reducing the rate for commercial lenders who park excess cash at the central bank to minus 0.1 percent from zero, said people who asked not to be identified because the talks aren’t public.

It would be the first time the ECB has adjusted interest rates by less than a quarter of a percentage point. The concept, which has been discussed by Governing Council members, doesn’t yet have a consensus, the people said.

‘Negative Implications’

“Taking the deposit rate negative, that will have negative implications on the euro,” Eric Viloria, senior currency strategist at Gain Capital Group in New York, said in a phone interview. “If banks have to pay money in order to park cash with the ECB, it’s going to make them reluctant to do so, and make investors reluctant to hold euros.”

The Aussie fell for the first time in four days versus the dollar as the IMF said Australia’s central bank should maintain easy policy setting as the overvalued currency combined with a mining-investment slowdown are dragging on economic growth. The Aussie fell 1.1 percent to 93.34 U.S. cents after declining 1.3 percent, its biggest drop since July 31, and New Zealand’s currency dropped 1.2 percent to 82.73 U.S. cents.

The yen gained on most major counterparts as the panel advising Japan’s leaders on how to overhaul the 121 trillion-yen Government Pension Investment Fund said the world’s biggest manager of retirement savings should review its holdings of domestic bonds and diversify its investments into overseas assets.

The yen trimmed its loss this year to 11 percent, the most among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 6 percent and the dollar gained 3.9 percent.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $57 billion, from $63 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 dollar-yen exchange rate amounted to $14 billion, the largest share of trades at 24 percent. Options on the euro-dollar rate totaled $11 billion, or 20 percent.

Dollar-yen options trading was 36 percent more than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 46 percent above average.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net

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

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