Dollar Gains Before Bernanke Remarks; Pound Rises on BOELucy Meakin and Mariko Ishikawa
The dollar strengthened and the yen fell before testimony from Federal Reserve Chairman Ben S. Bernanke that investors are looking to for signs on the strength of the U.S. economy and the central bank’s stimulus plans.
The U.K. pound rose from a four-month low against the euro after minutes of the Bank of England’s last meeting showed policy makers unanimously backed new Governor Mark Carney’s vote against expanding stimulus. The Bloomberg Dollar Index snapped a two-day decline before data that economists said will show U.S. housing starts increased for a second month, adding to the case for the Fed to slow monetary easing. Canada’s dollar fell amid bets the central bank will keep interest rates unchanged.
“We are very constructive on the U.S. dollar for very fundamental reasons,” Deutsche Bank AG Co-Chief Executive Officer Anshu Jain said in a Bloomberg Television interview with Haslinda Amin in Singapore. “A combination of a U.S., which is re-industrializing, and a household, which is starting to spend again, could presage a long, strong period for the U.S., which of course would be good for the dollar.”
The dollar advanced 0.6 percent to 99.70 yen at 7:19 a.m. New York time, after depreciating 0.8 percent yesterday. It strengthened 0.2 percent to $1.3141 per euro. The Japanese currency weakened 0.4percent to 131 per euro.
The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.2 percent.
Bernanke said on June 19 that the Fed may start slowing its bond-buying program this year and end it entirely in mid-2014 if the economy achieves sustainable growth. Minutes released on July 10 of the Fed’s last policy meeting showed “about half” of the participants indicated “it likely would be appropriate” to end the buying late this year.
The central-bank chairman is scheduled to deliver his semi-annual monetary policy report to Congress, starting with the House Financial Services Committee today. His prepared testimony will be released at 8:30 a.m. in Washington and the hearing begins at 10 a.m. The Fed purchases $85 billion of Treasuries and mortgage debt each month as part of its latest round of quantitative easing to cap borrowing costs, a program that tends to debase the currency.
The U.S. Commerce Department will say today that housing starts climbed 5 percent in June from a month earlier to a 960,000 annualized rate, according to the median estimate of economists surveyed by Bloomberg News.
JPMorgan Chase & Co.’s Global FX Volatility Index, a measure of currency fluctuations, slipped to 10.37 percent, the lowest since June 18. It reached a one-year high of 11.96 percent on June 24.
“The dollar is unlikely to be sold in the long term,” said Masato Yanagiya, the New York-based head of foreign-exchange and money trading at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest financial group by market value. “The market consensus is for the Fed to taper quantitative easing in September.”
The yen weakened against all of its major counterparts as the Bank of Japan released minutes of its June 10-11 policy meeting today. One board member said it’s appropriate for the central bank to limit the period of its monetary stimulus to about two years and review it thereafter, the minutes showed. If expectations rise in markets that the measures will continue for a longer period or “extreme” additional steps will be implemented, that would lead to economic instability in the medium-to-long term, the member said.
The pound reversed declines after minutes of the Bank of England’s July 3-4 meeting showed officials Paul Fisher and David Miles dropped their call to expand the central bank’s 375 billion-pound ($570 billion) quantitative-easing program instituted in 2009. They rallied to Carney’s policy of a “mixed strategy” involving guidance on the path of interest rates, ending months of split decisions within the nine-member Monetary Policy Committee.
The pound rose 0.7 percent to 86.26 pence per euro after touching 87.11, the weakest level since March 13. Sterling gained 0.5 percent to $1.5231.
“It’s encouraging to see further signs of confidence from the BOE,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “Not before time, the green shoots are visible in a market positioned short the pound.” A short position is a bet an asset’s value will fall.
Sterling’s advance against the euro presents an opportunity to buy the 17-nation currency, according to an e-mailed comment from Chris Turner, head of foreign-exchange strategy at ING Groep NV In London.
The pound “rallied sharply primarily on the headline that it was a 9-0 vote for unchanged QE at the July meeting,” he said in an e-mail following the minutes. “The discussion on activity was generally encouraging in the minutes, but we tend to think that the pound does not hold today’s gains.”
Canada’s currency weakened 0.1 percent to C$1.0380 per U.S. dollar after gaining 0.6 percent yesterday. Bank of Canada Governor Stephen Poloz will keep the benchmark interest rate at 1 percent today as he releases his inaugural monetary policy report, according to a Bloomberg survey of 20 economists.