Dollar Near Four-Month Low Against Peers Amid Fed Guidance BetsMasaki Kondo and Mariko Ishikawa
The dollar was near a four-month low against its peers amid bets the Federal Reserve will drop its jobless-rate threshold today and adopt qualitative guidance for signaling when it will raise interest rates.
Traders’ expectations of future currency swings remained near the lowest since 2012 after President Vladimir Putin said Russia isn’t seeking to split Ukraine further following the secession of its Crimea region. The yuan starts to trade directly against New Zealand’s dollar today. China’s currency completed the biggest three-day loss yesterday since at least 2007 amid concern financial risk is increasing.
“I don’t think there’s even a single person in the world who still thinks the Fed’s jobless-rate guideline is effective,” said Masato Yanagiya, the head of foreign exchange and money trading in New York at Sumitomo Mitsui Banking Corp. “There appear to be more people expecting the Fed to be a little bit more dovish on rates.”
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against its 10 major counterparts, was little changed at 1,012.54 as of 6:58 a.m. in London. It touched 1,011.35 on March 17, the lowest since Nov. 1.
The greenback traded at 101.54 yen after depreciating 0.3 percent to 101.44 yesterday. It was at $1.3926 per euro following a 0.1 percent decline to $1.3934. Europe’s common currency was little changed at 141.40 yen.
Deutsche Bank AG’s index based on three-month implied volatility on nine major pairs was at 7.38 percent after falling to 7.14 percent on March 12, the lowest since December 2012.
Putin yesterday told Russian lawmakers not to believe “those who scare you with Russia, who yell that Crimea will be followed by other regions.” While he said Russia doesn’t plan to further split up Ukraine, Putin underscored his right to defend Russian speakers in Ukraine’s east.
Crimea voted on March 16 to join Russia, which should sign a treaty accepting the peninsula’s accession, according to an order signed by Putin and published on a government website. The U.S. and European Union imposed asset freezes and travel bans yesterday on members of Putin’s inner circle and Crimean leaders.
“I don’t see much enthusiasm from the West for sanctions as they are limited to individuals,” said Sumitomo Mitsui Banking’s Yanagiya. “Markets are noticing that the West pretends to be taking action but actually is trying to fudge the situation.”
The Chicago Board Options Exchange Volatility Index for U.S. shares, known as the VIX or the investor fear gauge, posted a two-day drop of 19 percent yesterday, the most since Feb. 7.
Putin’s speech soothed “market fears (for now) that the crisis will escalate further,” Spiros Papadopoulos, a Melbourne-based senior economist at National Australia Bank Ltd. wrote in a research note. “It gave investors the chance to start focusing on the U.S. FOMC meeting.”
The Federal Open Market Committee will conclude its first meeting today after Janet Yellen succeeded Ben S. Bernanke as chair last month. The central bank will probably scrap its 6.5 percent jobless-rate threshold in favor of qualitative guidance for signaling when it will consider raising the benchmark interest rate, according to a Bloomberg News survey of economists. The unemployment rate was at 6.7 percent in February, near the lowest since October 2008.
“Once the results of FOMC are out and we know the details of their forward guidance, it’s possible for the market to re-focus on the Ukraine situation,” said Masakazu Sato, a Tokyo-based foreign-exchange adviser at Gaitame Online Co. “The dollar’s gains are being capped versus the yen while risk appetite is subdued.”
The yuan weakened 0.2 percent to 6.1920 per dollar yesterday. The Chinese currency declined 0.9 percent since March 13, the biggest three-day drop in data going back to April 2007.
Zhejiang Xingrun Real Estate Co., a closely held company with 3.5 billion yuan ($565 million) of debt, collapsed and its largest shareholder was detained, government officials familiar with the matter said on March 17. The failure came less than two weeks after the first bond default by a Chinese company, Shanghai Chaori Solar Energy Science & Technology Co.
China’s central bank set the yuan reference rate at 5.2899 per New Zealand dollar today. The exchange rate in Shanghai is allowed to move by as much as 3 percent on either side of the fixing rate.