Dollar Reaches Two-Week High as Investors Ditch Riskier Assets

Updated on
  • Fed, BOJ, BOE meetings in focus before June 23 U.K. EU vote
  • Haven demand benefits yen, complicates BOJ’s policy path

The dollar rose to the strongest level in almost two weeks as investors dumped riskier currencies before central bank meetings in the U.S. and Japan and the U.K. Brexit referendum.

The U.S. currency gained the most against Norway’s krone and the British pound as refuge demand dominated the $5.3 trillion-a-day market. A measure of volatility surged to the highest in four and a half years as five polls, all published during the past 24 hours, showed the U.K. on course to leave the European Union.

"Investors continue to shun riskier assets and savor traditional safe harbors," said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc. "High-beta currencies are trending lower against the dollar." An asset with a high beta tends to rise and fall more than the overall market.

The greenback’s gains Tuesday pared its loss this year as mixed economic data and global headwinds damp the outlook for higher interest rates. The Federal Reserve and Bank of Japan meet this week, with most economists surveyed by Bloomberg predicting both authorities will refrain from stimulus changes before the June 23 Brexit vote.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.5 percent as of 5 p.m. New York time, the highest since June 2. The JPMorgan Chase & Co. Group of Seven Volatility Index rose to 12.79 percent, the highest since December 2011.

Other haven currencies, such as the yen and the Swiss franc, also benefit from the increasing demand for safe assets. The franc rose to the strongest against the euro this year, while the yen rallied 4.4 percent versus the dollar this month, the best performer among the major currencies. The appreciation complicates the BOJ’s effort to spur consumer prices higher and generate economic growth through a weaker yen, and raises the specter for more monetary easing this year.

“The markets are also wary that the Fed, Bank of Japan and Bank of England are holding their monetary policy meetings this week,” Philip Wee, senior currency economist at DBS Group Holdings Ltd. in Singapore, wrote in a note. “Most will be interested to see how much Brexit risks have dampened Fed Chair Janet Yellen’s optimism,” and he said there could be surprises from the BOJ.

— With assistance by Lananh Nguyen

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