The dollar gained for the first time in four days against the yen before the Federal Reserve announces whether it will reduce stimulative bond-buying that’s been debasing the U.S. currency.
The greenback climbed against the euro as central bank policy makers decide whether to begin reducing $85 billion per month of bond-buying, known as quantitative easing. Japan’s currency fell versus all except two of its 16 major peers as the nation’s trade deficit widened to a record. The pound jumped the most in almost six weeks versus the euro as the U.K.’s jobless rate fell to the lowest since 2009.
“Investors are playing it cautious and flattening out some of the negative bets on the dollar,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “Japan’s trade gap offers more evidence the world’s biggest economies are on a fragile footing. Sooner or later, we’ll see more QE from Japan.”
The dollar rose 0.5 percent to 103.22 yen at 1:28 p.m. in New York. It reached 103.92 on Dec. 13, the highest since October 2008. The U.S. currency gained 0.1 percent to $1.3759 per euro, while Japan’s currency dropped 0.5 percent to 142.02 per euro.
The pound rose for the first time in six days versus the dollar after U.K. unemployment fell to 7.4 percent in the three months through October, fueling speculation the Bank of England will need to raise interest rates sooner than it plans.
The Bank of England, led by Governor Mark Carney, has pledged to keep borrowing costs low until unemployment falls to 7 percent, subject to caveats on financial stability and the central bank’s inflation target of 2 percent.
The pound gained 0.8 percent to 83.95 pence per euro, the biggest advance since Nov. 7. It depreciated to 84.67 pence yesterday, the weakest level since Nov. 4.
India’s rupee erased an advance after the central bank unexpectedly refrained from raising interest rates. Governor Raghuram Rajan kept the repurchase rate at 7.75 percent, the Reserve Bank of India said, as predicted by five of 31 analysts in a Bloomberg News survey. The rest expected an increase to 8 percent.
The rupee fell 0.1 percent to 62.1050 per dollar after strengthening 0.4 percent. The currency dropped to a record low of 68.845 on Aug. 28.
The Bloomberg U.S. Dollar Index gained 0.1 percent to 1,017.31. There’s about a 60 percent chance the Fed will announce a reduction in its monthly asset-purchase program today, according to Mohamed El-Erian, chief executive officer of Pacific Investment Management Co.
When it tapers, U.S. central bank officials will offer a package of policies, which may include a change in how much they pay banks on excess reserves, thresholds for changing programs and forward guidance on policy, El-Erian said yesterday in an interview with Betty Liu and Cory Johnson on Bloomberg Television.
The Fed will start reducing purchases this month, according to 34 percent of economists surveyed by Bloomberg on Dec. 6. Twenty-six percent forecast January and 40 percent said March. Traders see an 89 percent chance the U.S. central bank will keep the federal-funds rate target at zero to 0.25 percent through next year, data on futures compiled by Bloomberg show.
Investors should use the resulting moves to enter long dollar positions against the South African rand, Turkish lira and Brazilian real, which are vulnerable to an eventual start to tapering, wrote analysts led by London-based Hans Redeker, head of global currency strategy. A long position is a bet an asset will rise.
The real fell 1 percent to 2.3427 per dollar, the biggest loss among emerging-market currencies.
Japan’s merchandise trade deficit for November was 1.35 trillion yen on a seasonally adjusted basis, compared with the 1.2 trillion yen median estimate in a Bloomberg News survey of economists. Imports climbed 21.1 percent from a year earlier while exports rose 18.4 percent, the finance ministry said.
“The trade data is having a big impact on the yen,” said Kathleen Brooks, European research director at Forex.Com in London. “The yen will have the biggest reaction” to a U.S. cut in stimulus because “if the Fed decides to taper, it leaves the BOJ on its own,” she said, referring to the Bank of Japan. That may weaken the yen toward 105 per dollar, Brooks said.
Bank of Japan officials see significant scope to increase government-bond purchases if needed to achieve their inflation target, according to people familiar with the discussions.
Seventy-one percent of economists surveyed by Bloomberg expect the BOJ to leave policy unchanged at the two-day meeting starting tomorrow, and will escalate stimulus after a bump in the national sales tax in April.
The yen has dropped 14.5 percent this year, the worst performer in Bloomberg Correlation Weighted Indexes which track 10 developed-nation currencies. The euro has risen 8.7 percent, the best performer, while the dollar is up 3.7 percent.