Dollar Bulls Chasing Data Trail Expect Yellen to Stick to Script

The Search for September Signals

Dollar bulls believe Federal Reserve policy makers when they say the timing of interest-rate increases depends on the data.

That’s why they’re anticipating Chair Janet Yellen won’t give anything away at the end of a two-day policy meeting Wednesday.

A gauge of the dollar is lower for the week as investors bide their time following five straight weekly gains -- the longest stretch this year. Options to buy the U.S. currency have tracked economic statistics this month: They slid to a 10-month low last week, exacerbated by a surprise drop in retail sales, before recovering following the fewest initial jobless claims since 1973.

“The Fed is not on a fixed, premeditated path, but clearly they are biased to move away from emergency policy settings,” said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking Corp. in Sydney, who predicts rate increases in September and December. The post-meeting statement will be “at worst neutral for the dollar, and at best reasonably bullish, if it is tweaked to signal liftoff is now fast approaching.”

The Bloomberg Dollar Spot Index was little changed at 1,203.83 as of 6:54 a.m in London from Tuesday. It has slid 0.5 percent this week, after climbing to 1,212.78 on Friday, the highest level since March 19. The dollar slipped 0.1 percent to 123.43 yen, while trading little changed at $1.1053 per euro.

‘More Balanced’

The New Zealand dollar gained 0.4 percent to 67.10 U.S. cents after Reserve Bank Governor Graeme Wheeler cast doubt on the need for deep rate cuts.

“Wheeler’s comments today continued to be more balanced than markets had been hoping for and confirmed recent reductions in positions shorting the kiwi,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “Longer-term drivers of the currency remain in place with trend declines expected to continue after a period of consolidation.”

Yellen has repeated since March that she expects to be able to raise rates sometime this year for the first time since 2006, even as she has continued to stress that the decision will depend on the economic data.

Fed funds futures show the odds of an increase by December at 69 percent, compared with 70 percent odds a week ago, according to data compiled by Bloomberg.

Citigroup Inc.’s Economic Surprise Index for the U.S., which measures whether data have been above or below analysts’ forecasts, rose to the highest since January last week. The world’s biggest currency trader says the risk is that Yellen adopts a more hawkish tone.

“There’s greater confidence at this point that we’re in the midst of a renewed pickup” in the economy, said Todd Elmer, a Singapore-based strategist at the bank, who expects a first rate rise in September and another in the first quarter of next year. “There is more ammunition for dollar buying following the consolidation we’ve seen over the past several days.”

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