Dollar Rises Most in 4 Weeks as Fed Ends Buying on Labor

The dollar gained the most in almost four weeks after Federal Reserve officials confirmed they will end their bond-purchase program amid improved labor-market conditions.

The greenback rose to a three-week high versus the yen, while emerging-market currencies declined, as traders pushed up odds for an interest-rate increase next year even as the Federal Open Market Committee maintained its pledge to keep borrowing costs low for a “considerable time.” New Zealand’s dollar fell as the central bank kept interest rates on hold, while Norway’s krone dropped as retail sales unexpectedly declined.

“The FOMC played up the strength of the labor market, and downplayed the extent to which lower inflation expectations were likely to impact long-term inflation and by extension policy,” Alan Ruskin, the global head of Group of 10 foreign exchange at Deutsche Bank AG in New York, wrote in an e-mail. “The response has been a clear-cut stronger USD.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, climbed 0.6 percent to 1,069.42 at 5 p.m. in New York, the biggest jump since Oct. 3. It earlier dropped 0.2 percent.

The greenback rose 0.7 percent to 108.89 yen and touched 108.96, the highest since Oct. 7. It rallied 0.8 percent to $1.2632 per euro after declining 0.7 percent in the previous three days. Japan’s currency climbed 0.1 percent to 137.56 per euro after reaching 138.03, the weakest since Oct. 1.

The odds of borrowing costs going up by October 2015 climbed to 61 percent, from 51 percent before the Fed announcement, based on futures prices.

EM Selloff

The prospect of higher interest rates in the world’s biggest economy hurt the appeal of emerging-market assets, with an index with equal weightings of 20 major developing currencies dropping 0.3 percent after earlier gains.

Hungary’s forint slumped 1.1 percent to 245.07 per dollar, while South Africa’s rand declined 0.9 percent to 10.9479.

The New Zealand dollar fell 1.5 percent to 78.02 U.S. cents as central-bank Governor Graeme Wheeler held the cash rate at 3.5 percent, as predicted by all 13 economists in a Bloomberg survey. The central bank signaled it will keep interest rates on hold for an extended period as inflation slows and the currency remains unjustifiably high.

The Norwegian krone dropped as retail sales shrank 0.1 percent in September from a 0.6 percent gain the previous month, data from Statistics Norway showed today. That compares with the median prediction of a 0.7 percent gain in a Bloomberg survey of economists. The jobless rate increased to 3.7 percent in August, from 3.4 percent the prior month, another report showed.

The krone slid 1.5 percent to 6.7079 versus the dollar and reached 6.7156, the weakest since June 2010. It depreciated 0.6 percent to 8.4725 per euro.

‘Job Gains’

“Labor-market conditions improved somewhat further, with solid job gains and a lower unemployment rate,” the FOMC said today in a statement in Washington. “A range of labor market indicators suggests that underutilization of labor resources is gradually diminishing,” the panel said, modifying earlier language that “there remains significant underutilization of labor resources.”

The dollar index had been headed for its first monthly decline since June on concern slowing global growth and rising risks of disinflation will spill over into the U.S., prompting traders to push out their bets on the timing of the Fed’s rate increase. Policy makers have kept their key interest rate at zero to 0.25 percent since December 2008.

“The market had a little fit in the first half of October and pushed the fed-funds expectations, the first hike, out six months,” Greg Anderson, head of global foreign-exchange strategy in New York at Bank of Montreal, said by phone. “The Fed has just come back and said they’re looking at the fundamentals and gathered everybody back to June again.”

Dollar ‘Positive’

The U.S. economy will expand 2.2 percent this year and 3 percent in 2015, according to another Bloomberg survey. The euro area will grow 0.8 percent and 1.2 percent, while Japan’s economy will expand 1 percent in 2014 and 1.2 percent the following year, the surveys predict.

The U.S. may have added 225,000 jobs this month, at just about the average monthly gain this year of 227,000, according to a Bloomberg News survey of economists before the Nov. 7 Labor Department report. The unemployment rate is projected to be unchanged at 5.9 percent, the lowest level since July 2008.

“I can see a rate hike in the first half, based on the statement and the labor metrics,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a telephone interview. “The market absorbed the statement as being positive for the dollar.”

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