Dollar Rises as Fed Cites Economic Gains, Keeps Buying

The dollar rose to the strongest level in almost two weeks against the yen after the Federal Reserve said it sees economic improvement even as it plans to maintain stimulus while it awaits evidence of further gains.

The Bloomberg U.S. Dollar Index touched the highest since Oct. 17, erasing an earlier loss, after policy makers issued a statement following a two-day meeting. The greenback fell earlier amid bets the central bank would keep buying $85 billion of bonds a month under quantitative easing. New Zealand’s dollar rose as the central bank said interest-rate increases are likely next year.

Fed officials “said they’re still seeing improvement in economic activity and labor-market conditions, which is why we saw the dollar rebound,” Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York, said in a phone interview. “But the trend is still for dollar weakness as they maintain the pace of QE.”

The dollar strengthened 0.3 percent to 98.51 yen at 5 p.m. New York time after touching 98.68, the highest since Oct. 17. It rose 0.1 percent to $1.3736 per euro after gaining as much as 0.4 percent and weakening 0.3 percent. Japan’s currency declined 0.3 percent to 135.32 per euro after reaching 135.51 on Oct. 22, the weakest level since November 2009.

The Bloomberg U.S. Dollar Index, which monitors the greenback against 10 major counterparts, rose 0.1 percent to 1,007.37 and reached 1,009.13, the highest in almost two weeks. The gauge fell 0.3 percent earlier.

Higher Volatility

A measure of price swings among the currencies of Group of Seven nations has gained this week. The JPMorgan G7 Volatility Index increased to as high as 7.84 percent today after sliding on Oct. 28 to 7.48 percent, the lowest since Dec. 21. The 2013 average is 9.38 percent.

New Zealand’s dollar rose from a six-week low against its U.S. counterpart, erasing earlier losses, after the nation’s central bank kept its benchmark rate at 2.5 percent while saying “increases will likely be required next year.” The currency, nicknamed the kiwi, gained 0.1 percent to 82.66 U.S. cents after sliding 0.8 percent earlier to 81.93, the weakest level since Sept. 17.

Brazil’s real declined versus most major peers as slower-than-forecast inflation damped speculation the country’s central bank will raise borrowing costs next month. The currency lost 0.2 percent to 2.1904 to the greenback.

Rupiah Drops

The Indonesian rupiah sank versus all of its 31 most-traded counterparts on speculation companies stepped up dollar purchases to meet month-end payments. It decreased 0.7 percent to 11,175 per dollar after earlier sliding 1 percent, the most since Sept. 30.

Economists forecast no change to the Fed’s bond buying today. The policy-setting Federal Open Market Committee won’t reduce the pace of purchases until its March 18-19 meeting, according to an Oct. 17-18 Bloomberg News survey.

The Fed buys $45 billion of Treasuries and $40 billion of mortgage-backed securities each month to push down borrowing costs and spur growth, a move that tends to debase the dollar.

“Taking into account the extent of federal fiscal retrenchment over the past year, the committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy,” the FOMC said in a statement.

It repeated it will “await more evidence that progress will be sustained before adjusting the pace of its purchases.”

‘Slightly Hawkish’

The market “sees this in a slightly hawkish light and the Dollar Index rebound continues,” Kit Juckes, global strategist at Societe Generale SA in London, wrote in an e-mail. “This is the most dovish central bank out there simply failing to surpass expectations.”

The cost of living rose 1.2 percent in the 12 months through September, the least since April, the Labor Department reported. The Fed’s inflation target is 2 percent.

American companies hired fewer workers than projected this month, another report showed. Businesses added 130,000 jobs, the Roseland, New Jersey-based ADP Research Institute said, versus a Bloomberg forecast of 150,000.

The euro strengthened versus the yen after Spain’s National Statistics Institute said gross domestic product grew 0.1 percent in the third quarter compared with the previous three months, when it declined 0.1 percent.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $32 billion, from $48 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 euro-dollar exchange rate amounted to $6.6 billion, the largest share of trades at 21 percent. Options on the dollar-yen rate totaled $6.3 billion, or 20 percent.

Euro-dollar options trading was 12 percent more than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 11 percent below average.

(Removes incorrect reference to inflation forecast in 15th paragraph in article published on Oct. 30)
Before it's here, it's on the Bloomberg Terminal.