Bloomberg News

Dollar Index Pares Loss as Fed Maintains Stimulus to Spur Growth

May 01, 2013

The Dollar Index (DXY) fell for a fifth day as the Federal Reserve said it will maintain its bond buying at a pace of $85 billion a month and is prepared to raise or lower the level of purchases as economic conditions evolve.

The gauge, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro and yen, briefly pared losses as the Fed issued a statement after a two-day meeting. The index slid to a two-month low earlier after private data showed American companies hired fewer workers than forecast in April.

“We’ve seen the slowdown of data and indicators put a pause in the market’s expectation for the tapering of quantitative easing,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a phone interview before the central bank’s policy statement. “The Fed has clearly been cautious on the outlook for the economy.”

The Dollar Index decreased 0.2 percent to 81.578 at 2:03 p.m. in New York. It touched 81.331, the lowest since Feb. 25.

The Fed is buying $85 billion of Treasury and mortgage bonds a month. While Chairman Ben S. Bernanke said after the central bank’s March meeting that further labor-market gains were needed to consider reducing monetary easing, minutes showed officials discussed slowing the pace of purchases.

Economists’ Forecast

None of 47 economists in a Bloomberg News survey undertaken April 25-29 forecast a decision at this week’s meeting to change the pace of purchases.

The Dollar Index slid earlier after data from ADP Research Institute showed U.S. companies added 119,000 workers to payrolls last month. Economists surveyed by Bloomberg forecast a gain of 150,000.

The Institute for Supply Management’s manufacturing index fell to 50.7 in April, the slowest pace in four months, from March’s 51.3, the Tempe, Arizona-based group reported. A Bloomberg survey forecast 50.5. A reading of 50 is the dividing line between expansion and contraction.

The U.S. economy grew at a 2.5 percent annual rate in the first quarter, trailing a forecast of 3 percent in a Bloomberg survey of economists, the government said April 26. Consumer prices fell 0.2 percent in March.

First Rounds

The Fed bought $2.3 trillion of Treasury and mortgage- related debt from 2008 to 2011 in its first two rounds of quantitative easing. It started a third round in September by purchasing $40 billion of mortgage securities every month, and it added $45 billion of Treasuries in December.

The Dollar Index dropped 0.6 percent on the day of the Fed’s Sept. 13 announcement and declined 0.3 percent the day of its Dec. 12 policy statement.

The central bank also has kept its benchmark interest-rate target at zero to 0.25 percent since 2008 to support the economy. Policy makers said in December the rate would stay there “at least as long” as the unemployment rate remains above 6.5 percent and inflation is projected at no more than 2.5 percent. The jobless rate is 7.6 percent.

Net bets by futures traders on an increase in the dollar versus major counterparts totaled 38,744 contracts in the week ended April 30, after increasing to 86,776 for a month earlier, the most since July, according to Commodity Futures Trading Commission data compiled by Bloomberg. As recently as the week ended March 4 there was a net bet against America’s currency.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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