The dollar rose for a third day against the yen as the U.S. Federal Open Market Committee began a two-day meeting amid forecasts it won’t announce any major changes to its asset-purchase program.
The Bloomberg U.S. Dollar Index climbed to the highest level in more than a week before the policy makers issue a statement tomorrow. Australia’s dollar slid versus all of its 16 major peers after Reserve Bank Governor Glenn Stevens said it will probably become “materially lower,” and the South African rand dropped against all but the Aussie. The yen gained earlier versus the dollar as jobs and retail sales rose before a Bank of Japan meeting this week.
“Ahead of the FOMC, people might be a bit more prudent and reducing risk positions,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said in a phone interview. “The foreign-exchange market in general is more reticent to take on risk than the stock market.”
The dollar strengthened 0.5 percent to 98.19 yen at 5 p.m. New York time, reversing a decline that saw it weaken as much as 0.2 percent. The greenback appreciated 0.3 percent to $1.3745 per euro and touched $1.3737, the strongest level in a week. It has fallen 1.6 percent versus the 17-nation currency this month. The euro gained 0.2 percent to 134.96 yen.
Bloomberg’s dollar gauge, which monitors the greenback against 10 other major currencies, advanced 0.4 percent to 1,006.12 and reached 1,066.22, the highest since Oct. 17. The index dropped on Oct. 23 to 997.94, the least since February.
Stocks rose, with the Standard & Poor’s 500 Index gaining 0.6 percent.
A gauge of price swings among the currencies of Group of Seven nations rose. The JPMorgan G7 Volatility Index was at 7.63 percent after falling yesterday to 7.48 percent, the lowest level since Dec. 21. The 2013 average is 9.39 percent.
South Africa’s rand fell against the dollar for a third day after demand for credit in the country slowed more than predicted, adding to evidence that growth in Africa’s biggest economy is losing momentum. The currency declined 0.6 percent to 9.8919 per dollar.
The Australian dollar dropped for a third day versus its U.S. peer after the Reserve Bank of Australia’s Stevens said the South Pacific currency’s level wasn’t supported by costs and productivity in the economy. The Aussie slid 1 percent to 94.79 U.S. cents.
The greenback lost 0.5 percent over the past month in a basket of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen fell 0.4 percent, while the euro gained 1.3 percent.
“The dollar is showing strength across the board,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a telephone interview. “It’s already been very well priced-in that the Fed doesn’t change policy tomorrow. With the dollar being sold off over the last couple of weeks, there could be some profit-taking and positioning ahead of the meeting.”
The Federal Reserve will pare its $85 billion in monthly bond buying at its March meeting, according to a Bloomberg survey of analysts on Oct. 17-18. The purchases, made to push down long-term yields and spur growth, tend to debase the greenback. Policy makers last month refrained from slowing the stimulus to await further evidence of economic recovery.
Japanese retail sales climbed 1.8 percent in September from the previous month, the nation’s statistics bureau said. The unemployment rate fell to 4 percent.
Bank of Japan
The Bank of Japan buys more than 7 trillion yen ($71 billion) of government bonds every month in its bid to combat deflation. It meets Oct. 31. An exchange rate of 100 yen per dollar would be good for the economy, Koichi Hamada, an adviser to Japanese Prime Minister Shinzo Abe, said on Jan. 18.
“The Japanese government generally said at the beginning of the year that they’d like to see dollar-yen around about 98-100,” said Neil Mellor, a foreign-exchange strategist at Bank of New York Mellon in London. “The yen has been going sideways ever since because the market believes that’s where the government wants it and will actively strive to keep it.”
Morgan Stanley entered long positions on the dollar and euro versus the yen, according to a client note written by analysts led by Hans Redeker, the firm’s London-based head of global strategy. Long positions are bets currencies will gain.
Japanese policy makers have repeatedly said a weaker yen is important to reaching their 2 percent inflation target, and the firm believes “they will deliver on their promises,” the analysts said. Morgan Stanley’s targets are 105 yen per dollar and 139 yen per euro, the analysts said.
The Canadian dollar slid to the weakest level in seven weeks after Bank of Canada Governor Stephen Poloz told lawmakers in Ottawa he would extend a three-year pause in interest-rate increases. The currency depreciated 0.2 percent to C$1.0469 and touched C$1.0471, the least since Sept. 6. It rose earlier amid bets it had reached a low point.
Trading in over-the-counter foreign-exchange options totaled $49 billion, from $30 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 U.S.- Canada-dollar exchange rate amounted to $9.7 billion, the largest share of trades at 20 percent. Options on the dollar-yen rate totaled $8.9 billion, or 18 percent.
U.S.-Canada options trading was 900 percent more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 32 percent above average.