Tuesday, 30 July 2013

Dollar Set for Monthly Loss Before FOMC; Aussie Near 3-Year Low

By Mariko Ishikawa & Kevin Buckland - Jul 31, 2013 8:20 AM GMT+0400
The dollar is set to close out a monthly loss against most of its major peers as investors await the Federal Reserve’s policy statement today for signals on when it may curb bond buying that tends to debase the currency.
The dollar was 0.3 percent from a six-week low against the euro before U.S. data forecast to show slowing growth in gross domestic product and employment. Fed Chairman Ben S. Bernanke said earlier this month that any reduction in stimulus would depend on the economy’s performance. The pound traded near the lowest in four months against the euro before policy decisions from the European Central Bank and the Bank of England tomorrow. Australia’s dollar approached its lowest in almost three years.
July 31 (Bloomberg) -- Chris Weston, chief market strategist at IG Markets in Melbourne, talks about Reserve Bank of Australia monetary policy and its implications for the local currency. He also discusses the prospects for Federal Reserve policy and Japan stocks. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
“The dollar has fallen as investors pushed back expectations for near-term policy tightening,” said Kikuko Takeda, a senior analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. Bernanke “may try to send an even stronger message that the end of stimulus and the start of rate hikes are completely separate considerations.”
The greenback was little changed at 98.05 yen as of 1:02 p.m. in Tokyo from yesterday, headed for a 1.1 percent monthly decline. It traded at $1.3256 per euro from $1.3263 yesterday, when it touched $1.3302, matching the weakest since June 20. The shared currency bought 129.99 yen from 130.01. For the month, the euro was poised for a 0.8 percent climb versus the yen and 1.9 percent advance against the U.S. dollar.
The pound was little changed at 87.071 pence per euro after reaching 87.095, the weakest since a 87.108 reading on July 17, a level unseen since March 13. Sterling slipped 0.1 percent to $1.5224 from yesterday, when it dropped 0.7 percent.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, was at 1,027.56 from 1,026.81 yesterday. It dropped to 1,021.21 on July 29, the weakest since June 19.

Hiring Slows

U.S. gross domestic product probably grew at a 1 percent annualized rate from April through June, compared with 1.8 percent in the previous three months, according to the median estimate of economists surveyed by Bloomberg News before the Commerce Department data today.
A separate poll forecast that a report from the ADP Research Institute today will show employers added 180,000 jobs this month, less than the 188,000 in June.
Bernanke said on June 19 that policy makers would taper their $85 billion in monthly bond purchases this year and end it around mid-2014 if the economy performed in line with their expectations. He told lawmakers on July 17 that the central bank’s asset purchases “are by no means on a preset course,” and could be reduced or expanded as economic conditions warrant.

‘Message Adjustment’

“The Fed has done a lot of message adjustment in the last month, and there is an argument that it has done enough,” Greg Gibbs, a Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc, wrote in an emailed research note. “Changing the key phrases in the FOMC statement may be reaching too far in pre-setting its policy guide-path and trying to manipulate market expectations.”
In Europe, the Frankfurt-based ECB will leave its benchmark interest rate unchanged at 0.5 percent tomorrow, according to all but one of more than 60 estimates compiled by Bloomberg. The BOE will keep its bond-purchase program at 375 billion pounds ($571 billion) and its key rate at a record low 0.5 percent, separate surveys showed.

Forward Guidance

At the previous meeting of the BOE’s Monetary Policy Committee, officials signaled that they would keep interest rates at a record low for longer than investors had been betting. The analysis of providing forward guidance to be published in the Inflation Report on Aug. 7 will include an assessment of intermediate thresholds.
In Europe, “forward guidance is in its infancy relative to the U.S. but we expect it to put a cap on the respective currencies versus the USD,” Chris Walker, a foreign-exchange strategist at Barclays Plc in London, wrote in reference to the euro and pound.
Barclays entered a short euro-dollar trade with a target of $1.28, according to a note to clients yesterday.
The euro has gained 0.6 percent in the past month, according to Bloomberg Correlation-Weighted Indexes of 10 developed-nation currencies. Sterling has fallen 1.4 percent over the period, the third-worst performer after the Australian and U.S. dollars.

Aussie Decline

The Aussie fell for a third day amid speculation the Reserve Bank of Australia will cut borrowing costs next week. Governor Glenn Stevens said yesterday the inflation outlook provided room for further policy easing, prompting a 1.6 percent slide in the currency.
It lost 0.5 percent to 90.21 U.S. cents after dropping to 90.13 cents, the least since July 12 when it touched an almost three-year low of 89.99.
Stevens is “very happy with a lower Australian dollar, and I think he’s going to continue using that as a policy tool,” Chris Weston, the chief market strategist at IG Markets Ltd. in Melbourne, said in a Bloomberg Television interview. “August is certainly a date that they’re going to cut.”
IG expects the South Pacific nation’s currency to drop to 85 cents in 12 months, according to Weston. The median estimate of analysts in a Bloomberg survey is for 88 cents by the end of June next year.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net