The outcome of Wednesday’s Federal Reserve meeting is expected to set the tone for trade in the U.S. dollar heading into 2014, whatever decision is reached on the highly-anticipated tapering of monetary stimulus.
Contrary to expectations, the dollar has not seen a broad-based surge even as market expectations for when Fed tapering will begin have been bought forward in the face of upbeat economic data.
While the dollar hit a five-year high against the yen last week, it has weakened almost 8 percent against the euro in the past three months. The dollar index, which measures the greenback’s value against a basket of other major currencies, is hovering around 80.04 – not far from where it ended last year.
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Forget that strong October jobs report. It wasn’t strong enough to convince Ben Bernanke to slow the Federal Reserve’s stimulus program.
The latest data show the economy added an average of 200,000 jobs each of the last three months — marking a sudden breakout for the labor market after months of weaker reports.
Immediately after the October report was released, Fed watchers started speculating that it may just be the good news the Fed has been waiting for: Would the Fed start winding down its stimulus program at its next meeting in December? Now, it doesn’t sound like it. In a speech Tuesday evening, Bernanke characterized that data as “somewhat disappointing.”
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West Texas Intermediate crude fell to the lowest level in three months on estimates that crude stockpiles climbed in the U.S., the world’s biggest oil-consuming country.
Prices dropped as much as 2.1 percent. The Energy Information Administration will probably say today that supplies climbed by 3 million barrels last week in a fifth consecutive increase, according to a Bloomberg survey. The industry-funded American Petroleum Institute reported a 3 million-barrel gain yesterday. WTI’s discount to Brent widened to a six-month high.
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The yen fell against all of its 16 major peers after Japan posted a bigger-than-estimated trade deficit and gains in stocks reduced demand for haven assets.
Japan’s currency weakened as Bank of Japan Governor Haruhiko Kuroda pledged to continue easing to achieve stable inflation. The dollar traded near the weakest since February against major counterparts before data forecast to show U.S. unemployment held above the threshold for the Federal Reserve to start tapering stimulus. The 17-nation euro was 0.2 percent from the strongest in more than eight months ahead of a report this week which may show the region’s consumer confidence was the highest since July 2011.
“The yen is probably leading the way as far as losses versus the dollar are concerned,” said Sacha Tihanyi, a senior currency strategist at Scotiabank in Hong Kong. “Equities are doing a bit better. We haven’t seen a turn in the trade balance, which is a little bit concerning.”
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The economic cost of the U.S. government shutdown will keep the U.S. dollar under pressure this week, while the hit on business and consumer confidence could force the Federal Reserve to delay the withdrawal of stimulus until next year, according to CNBC’s latest market survey of currency traders, analysts and strategists.
Many forecast the U.S. dollar index, which measures the greenback’s value against a basket of currencies, to fall to fresh multi-month lows, possibly breaching 79.00. The index was at 79.63 on Monday.
“The dollar has traded very poorly on the back of the debt ceiling resolution against the Japanese yen, the euro and the Australian dollar,” said Jens Nordvig, Global Head of G10 FX Strategy at Nomura.
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China’s gross domestic product (GDP) rose 7.8 percent in the third quarter on year, the National Bureau of Statistics reported on Friday, up from 7.5 percent in the previous three months.
Industrial output for September, released alongside the growth data, came in slightly higher than forecasts, with an increase of 10.2 percent from a year earlier.
Fixed asset investment grew 20.2 percent in the first nine months of 2013 from a year earlier, lower than expectations for growth of 20.3 percent. Retail sales, meantime, were weaker than expected, rising 13.3 percent on year. Analysts had forecast a rise of 13.5 percent.
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