Bloomberg News

Dollar Advances Versus Euro, Yen After FOMC Minutes

February 20, 2013

Yen Drops on Japan’s Record Trade Deficit, BOJ Governor Report

Japan posted a trade deficit of 1.63 trillion yen ($17.4 billion) in January, the Ministry of Finance said in Tokyo today. That’s the biggest shortfall on record dating back to 1947. Photographer: Kiyoshi Ota/Bloomberg

The dollar gained versus the majority of its 16 most-traded peers after minutes from the Federal Reserve’s last meeting showed several policy makers said the central bank should vary the pace of its bond purchases.

New Zealand’s dollar slumped the most in almost nine months against the U.S. currency after Reserve Bank Governor Graeme Wheeler said the monetary authority was prepared to step in to prevent it from strengthening. The greenback extended gains against the euro as the Fed’s Jan. 29-30 meeting minutes show policy makers remain divided about the strategy of buying bonds, easing concern it will erode the value of the currency.

“Some people might say initially that it’s slightly hawkish, considering that they’re having these discussions,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “We also had several officials warning not to reduce easing too soon. At this point, there’s a little bit for everyone, unfortunately.”

The dollar gained 0.8 percent to $1.3283 per euro at 5 p.m. New York time. It was little changed at 93.57 yen. Japan’s currency strengthened 0.8 percent to 124.28 per euro.

New Zealand’s currency, nicknamed the kiwi, slid 1.3 percent to 83.56 U.S. cents after declining as much as 1.7 percent, the most since May 22.

FOMC’s View

The Dollar Index rose to a three-month high as some Federal Open Market Committee officials “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved,” according to the minutes of the FOMC’s last meeting released today in Washington.

The minutes showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in a U.S. labor market burdened with 7.9 percent unemployment, with some saying an earlier end to purchases might be needed, and others warning against a premature withdrawal of stimulus.

“There are people on both sides of the fence,” RBS Securities’ Kim said. “But you could also take the view that because they are talking about it, that’s something becoming more and more of a common discussion.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S trading partners, rose 0.7 percent to 81.035 after touching 81.116, the highest since Nov. 21.

Kiwi Surge

The kiwi slipped for the first time in three days against the dollar as Wheeler said the Reserve Bank of New Zealand can “attempt to smooth the peaks” of the exchange rate, in the text of a speech to manufacturers and exporters in Auckland.

The kiwi has surged more than 40 percent since the end of 2008, the biggest advance after its Australian counterpart among more than 150 currencies tracked by Bloomberg. It climbed to 88.43 U.S. cents on Aug. 1, 2011, the strongest since it was freely floated in 1985.

New Zealand is the latest in a string of countries warning their currencies are too strong even as Group of 20 nations pledge to refrain from competitive devaluation.

“From a longer-term investment value-driven perspective, there’s still demand for kiwi,” PK Sinha, New York-based managing director of foreign-exchange at CRT Capital Group LLC, said in a telephone interview. “It’s not as attractive as it used to be, but it’s still there.”

Pound Declines

The pound dropped to the lowest level in 31 months versus the dollar after the minutes of the central bank’s Feb. 7 meeting showed policy makers also considered an interest-rate cut.

Governor Mervyn King and Paul Fisher joined David Miles in voting to increase the target for bond purchases by 25 billion pounds ($38.3 billion) to 400 billion pounds, though they were outvoted by the other six members of the Monetary Policy Committee.

Sterling fell 1.2 percent to $1.5234 after dropping to $1.5193, the lowest since July 2010. It slumped 0.4 percent to 87.18 pence per euro.

The yen rose versus the euro after Prime Minister Shinzo Abe said there is less need for his nation to buy foreign debt, backing away from a proposal to set up a fund to buy foreign bonds that may be seen by other nations as an attempt to weaken the currency.

Abe will be accompanied by Vice Finance Minister Takehiko Nakao, his top currency official, when he visits the U.S. tomorrow to meet with President Barack Obama to discuss the weakening yen, among other matters.

The yen has slumped 6.6 percent this year, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 2.3 percent and the dollar added 1.5 percent.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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