Currency Volatility Falls to 1-Month Low Amid Rate Speculation

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Currency volatility fell to a one-month low as traders speculated on the timetable for the Federal Reserve to raise borrowing costs for the first time since 2006.

The dollar on Monday halted a three-day loss after a JPMorgan Chase & Co. measure of price swings slumped to a one-month low as a gauge of labor-market conditions slid. Fed Bank of New York President William C. Dudley said the pace of interest-rate increases is likely to be “shallow” once the central bank starts tightening. The greenback has declined for the past three weeks, paring gains made during a nine-month advance that was the longest since at least 2004.

“We have several months of consolidation ahead,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy, said by phone from New York. “For it to be a really big dollar reversal, I think you would have to see the Fed back away from rate hikes this year.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.3 percent to 1,185.72 as of 5 p.m. in New York, after falling as much as 0.4 percent.

The dollar weakened as much as 0.6 percent versus the euro on Monday before erasing those losses late in the day to gain 0.4 percent to $1.0922. The yen slumped 0.5 percent to 119.54 per dollar, snapping three days of gains.

Trading Conditions

“A lot of it does have to do with thinner trading conditions,” said Dave Floyd, head of foreign-exchange trading and research in Bend, Oregon, at Aspen Trading Group. “It’s probably not the time to be positioning for longer-term moves.”

JPMorgan’s gauge of global currency volatility fell to 10.1 percent on Monday, the lowest since March 9,

Volatility declined as a Fed measure of conditions in the labor market fell. A payrolls report last week showed companies added the fewest workers since December 2013 in March.

The timing of a rate increase is still uncertain and will depend on economic developments, New York Fed President Dudley said in a speech in Newark, New Jersey, on Monday.

“It will be important to monitor developments to determine whether the softness in the March labor-market report evident on Friday foreshadows a more substantial slowing in the labor market than I currently anticipate,” he said.

Futures traders have cut the likelihood policy makers will raise rates by their September meeting to 29 percent, down from 34 percent before the jobs report.

The dollar has gained 19 percent in the past 12 months, the best performer among a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has slumped 7.5 percent while the yen has advanced 1.2 percent in the period.

Weaker jobs data will “set the tone for the coming month, particularly for the dollar, which is likely to see some consolidation,” said Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York. “In terms of monetary policy, it’s a stronger reason to be more cautious and not rush into anything.”

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