Dollar Resumes Climb as Yellen Signals 2015 Interest-Rate Rise

A gauge of the dollar rose for the eighth time in nine weeks after Federal Reserve Chair Janet Yellen signaled that the central bank is poised to increase interest rates next year starting as early as April.

The greenback headed for gains this year against all except one of its 31 major peers, a feat it hasn’t accomplished since 1997, as Yellen said the impact of Russian turmoil on the U.S. economy is small. Hungary’s forint and the Polish zloty sank on concern the economic crisis that has driven the ruble down 44 percent this year will spread. The Swiss franc weakened the most in two months versus the euro after the central bank introduced negative interest rates.

Yellen is “really trying to say there’s a lot of volatility out there, but it’s not having a dramatic impact on the outlook of U.S.,” Kevin Hebner, a foreign-exchange strategist at JPMorgan Chase & Co., said by phone yesterday in New York. The process of the market adjusting to the Fed’s rate-rise projections “is going to get the dollar appreciating, especially against the euro and yen.”

Bloomberg’s gauge of the dollar rose 0.9 percent this week in New York to 1,125.58, the highest close since March 2009. That followed a 0.6 percent fall last week that snapped a seven-week rally. It has gained 10 percent this year.

The greenback rose 0.6 percent to 119.50 yen, also an eighth gain in nine weeks. It advanced 1.9 percent to $1.2229 per euro and reached $1.2220, the strongest since August 2012. The 18-nation currency fell 1.2 percent to 146.15 yen, a second week of declines.

Weekly Roundup

The forint slumped 4.2 percent versus the dollar, the biggest loser among the 31 major currencies, and the zloty fell 3.7 percent. The ruble extended its plummet as President Vladimir Putin said yesterday the crisis in Russia may last for two years.

The weakening of the zloty was welcomed as a support for exporters, central-bank policy maker Elzbieta Chojna-Duch was quoted as saying by the PAP newswire. “If the depreciation persists, it may be seen as a substitute for a rate cut,” she said.

Colombia’s peso led gains, surging 4.8 percent, on a stabilization in the price of crude oil, the Andean nation’s biggest exports. The pesos of Chili and Mexico were the next among advancers, adding 1.2 percent and 1.1 percent.

‘Telltale Sign’

Switzerland’s franc tumbled after the Swiss National Bank’s decision to protect the currency’s 1.20 per euro cap boosted speculation the European Central Bank will expand stimulus measures next year.

Switzerland’s move was a “telltale sign that the SNB is cautious because of the ECB,” said David Song, a New York-based currency analyst at FXCM Inc. “The SNB is going to follow along with the ECB in terms of the easing cycle.”

The franc depreciated 0.2 percent to 1.20359 per euro, the biggest decline since the five-day period ended Oct. 3.

The yen extended losses after the Bank of Japan said in a statement Dec. 19 in Tokyo it will boost its monetary base at an annual pace of 80 trillion yen, a decision forecast by all 33 economists surveyed by Bloomberg News. The economy is expected to continue a moderate recovery as the effects of an April sales-tax increase dissipate, the BOJ said.

Unstoppable Dollar

The dollar has gained against all of its 31 major counterparts this year except the Hong Kong dollar, a currency pegged to the greenback and which is up 0.01 percent. It last managed this feat in 1997, when another currency tied to the greenback at that time, China’s yuan, managed a 0.23 percent gain.

The U.S. currency recovered its losses this month after Fed officials on Dec. 17 dropped a pledge to keep borrowing costs near zero for a “considerable time.” The shift in guidance means “the committee considers it unlikely to begin the normalization process for at least the next couple of meetings.”

The Federal Open Market Committee’s next scheduled decisions are Jan. 28, March 18 and April 29.

The FOMC statement made no reference to the Russian currency crisis or other global risks that have roiled financial markets. Yellen said afterward that officials discussed the issue at this week’s policy meeting and agreed it would have little impact on the U.S.

Net Longs

“Things change quickly, and if they see a rapid rebound in the credit market and an acceleration on the payroll side, they want to have the option to raise rates significantly by mid-year,” said Robert Tipp, chief investment strategist in Newark, New Jersey for Prudential Financial Inc.’s fixed-income division, which oversees $533 billion in bonds. “It’s been a tremendous backdrop for the dollar.”

While still bullish, hedge funds and other large speculators reduced bets on dollar strength versus eight of its major peers by the most in nine months. The difference in the number of wagers on gains compared with those on declines -- net longs -- was 335,131 on Dec. 16, according to data from the Washington-based Commodity Futures Trading Commission. Investors amassed a record 428,558 dollar-long contracts at the start of the month.

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