CURRENCIES: Dollar Takes A Breather Ahead Of ECB, Fed Meetings
December 06 2016 - 10:36AM
Dow Jones News
By Mark DeCambre, MarketWatch , Hiroyuki Kachi
The dollar traded in a relatively tight range on Tuesday, as
investors brace for a series of influential monetary-policy
meetings, including the European Central Bank confab on Thursday
and the Federal Reserve meeting next week.
On Tuesday, the euro , which had its best day against the buck
since early June
(http://www.marketwatch.com/story/euro-tumbles-to-21-month-low-against-dollar-after-italys-no-vote-2016-12-05)
on Monday, held steady, buying $1.0738 compared with $1.0765 late
Monday in New York. Some traders are betting that the common
currency's rebound on Monday is a sign that it may have further
room to rise in the coming days.
A precipitous climb for the U.S. dollar has taken a breather as
the odds of an interest-rate increase at the Federal Reserve's
meeting Dec. 13-14 recedes from certainty to just a high
probability, according to CME Group data
(http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html).
It now shows a 94.9% probability of a rate hike compared with 100%
last week.
On Monday, the euro enjoyed a sharp 1% jump against the buck, as
investors shook off the "no" vote in the Italian constitutional
referendum and the resignation of the country's Prime Minister
Matteo Renzi.
The outlook for the buck against its main rivals has been
primarily determined by U.S. Treasury yields, which have paused
after rocketing higher as bond prices fell. An increase in rates
can make the greenback more attractive to traders, lifting the
returns on dollar-based deposits.
The yield on the benchmark 10-year U.S. Treasury note which was
at 2.39% early Tuesday, has hovered around 2.40% since Nov. 30.
That move came after rates surged in November, from around 1.60% at
the end of September, on expectations that President-elect Donald
Trump will introduce policies to spend billions of extra dollars on
improving the country's bridges, roads and tunnels. That would
increase U.S. borrowing and boost inflation, factors that are
bearish for bond prices.
"We've had a good move up in the dollar and I think that's been
mostly fueled by U.S. interest rates, and U.S. rates are a bit
softer," said Marc Chandler, global head of currency trading at
Brown Brothers Harriman.
A strengthening path for the dollar comes against the backdrop
of concerns about economic and political stability in other parts
of the globe, including Europe. Although some market players belief
Monday's muted response to Sunday's referendum signaled that
traders don't belief Italy's woes augur the demise of the euro,
investors will be looking for further clarity about the health of
European economy and its shared monetary unit.
Thursday's meeting of the ECB also will be used to glean
President Mario Draghi's plans for quantitative easing in Europe
(http://www.marketwatch.com/story/how-italys-no-vote-might-be-the-ecbs-silver-lining-2016-12-05).
Investors also are curious to see if he comments on the populist
uprise in Europe that was the centerpiece of the Italy's vote this
weekend, which threatens to destabilize the euro.
Elsewhere, the ICE U.S. Dollar Index , which gauges the dollar
against six rivals, was at 100.31 compared with 100.14 late Monday
in New York.
Meanwhile, the dollar firmed to Yen113.88 from Yen113.69 late
Monday in New York, but had traded lower against its Japanese
counterpart very early Tuesday.
"After seeing high volatility [Monday], investors look exhausted
today," said Yuzo Sakai, manager of FX business promotion at Tokyo
Forex & Ueda Harlow. He was referring to high volatility after
Italians said "no" to a plan backed by Prime Minister Matteo Renzi
that would have overhauled Italy's legislature to make it easier to
pass laws.
Among emerging markets currencies, Turkish lira fell to fresh
lows against the dollar, with the greenback buying 3.4559 lira on
Tuesday, a change of 1.9% from Monday.
South African rand also got hit, with the dollar buying 13.6269
rand on Tuesday from 13.7420 on Monday, a change of 0.8%.
(END) Dow Jones Newswires
December 06, 2016 10:21 ET (15:21 GMT)
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