Dollar Gains as Investors Weigh Fed Rate Move Timing; Euro Falls

The dollar advanced against major peers, following its biggest decline in more than 12 months yesterday, as investors weighed the timing of the Federal Reserve’s first interest-rate increase since 2006.

The euro weakened after a report showed German industrial production fell. Australia’s dollar held its biggest gain in seven months after the Reserve Bank pointed to an improvement in private demand after keeping policy settings steady. The yen gained versus the euro before Bank of Japan Governor Haruhiko Kuroda gives a news conference today following the central bank’s decision to leave stimulus unchanged.

“The main story is the U.S. dollar strength,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia. “It would be quite logical if the BOJ adds stimulus at the end of the month.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, gained 0.1 percent to 1,069.62 at 7:03 a.m. in London from yesterday, when it slumped 0.9 percent, the most since September 2013. It closed at 1,078.65 on Oct. 3, the highest since June 2010.

The greenback added 0.4 percent to $1.2610 per euro. It declined 0.2 percent 108.58 yen, following a 0.9 percent drop yesterday, the most since April 8.

The U.S. Fed, which meets Oct. 28-29, is on track to end a program of stimulatory bond purchases this month. Kansas City Fed President Esther George said it’s important to start normalizing rates sooner than later.

Fed Bets

Futures trading shows a 48 percent likelihood that the U.S. central bank will raise rates to 0.5 percent or higher by the end of July. The target rate has been maintained in a range of zero to 0.25 percent since 2008 to support the economy. The minutes of the Fed’s Sept. 16-17 meeting are due tomorrow.

The greenback has jumped 6.8 percent in the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen weakened 0.7 percent and the euro declined 1.7 percent.

In Germany, industrial production dropped 4 percent in August from the previous month, when it increased 1.6 percent.

The BOJ, which buys about 7 trillion yen ($64 billion) a month of government bonds, left monetary policy unchanged today, as predicted by all 33 economists surveyed by Bloomberg News between Sept. 26 and Oct. 2. Four of them, or 12 percent, expect additional stimulus on Oct. 31.

BOJ Governor Haruhiko Kuroda will give a news conference, after reiterating earlier today that a weak yen is not a minus for the overall economy.

RBA Decision

The RBA left the benchmark interest rate at a record-low 2.5 percent today, where it’s been since August 2013, and reiterated in a statement it sees a likely period of interest-rate stability. It said the exchange rate remains high by historical standards.

“The RBA was more positive on the local economy,” Kieran Davies, chief economist at Barclays Plc in Sydney, wrote in a client note, highlighting the section on private demand.

Australia’s currency was little changed at 87.64 U.S cents. It rallied 1 percent yesterday, the most since March 6, rising from a more than four-year low set last week.

Before it's here, it's on the Bloomberg Terminal.