Currency Volatility Buffets Dollar as Commodities Halt Decline

  • JPMorgan Global FX Volatility Index completes two-day jump
  • Greenback has biggest slump versus yen in more than 3 months

The dollar held losses against most of its major peers as a bounce in commodity currencies boosted volatility and traders prepared for the Federal Reserve’s policy decision next week.

A JPMorgan Chase & Co. index of global exchange-rate fluctuations completed its biggest two-day gain since Nov. 24 on Wednesday after the Bloomberg Commodity Index advanced for the first day this week. The greenback had its deepest slump in more than three months against the yen on Wednesday, paring a two-month advance that was driven by speculation the Fed will raise rates for the first time in almost a decade at its Dec. 15-16 meeting.

“Markets will be faced with heightened volatility going into the Fed’s gathering amid risk aversion and a lack of fresh news,” said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust Bank Ltd. in New York. “Currencies will be looking for stability in stocks or commodities.”

Bloomberg’s Dollar Spot Index was little changed at 1,220.99 at 9:28 a.m. in Tokyo from Wednesday, when in slid 0.8 percent. The greenback was at 121.61 yen from 121.44, after dropping 1.2 percent the previous day. It was steady at $1.1016 per euro.

The JPMorgan Global FX Volatility Index climbed to 9.43 percent on Wednesday, gaining 23 basis points over two days.

Fed Factor

The probability the Fed will increase its benchmark by the meeting was 78 percent, according to futures data compiled by Bloomberg. The calculation is based on the assumption the effective federal funds rate will average 0.375 percent after liftoff, compared with the current range of zero to 0.25 percent.

“Financial markets continue to hold broad-based expectations that the Fed will opt to raise rates, thereby providing some support for the U.S. dollar,” said James Chen, chief technical strategist at City Index Group, in an e-mailed note. “But much of those expectations have already been priced into the strengthening greenback in the past several weeks.”

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