Dollar falls from 3-week high versus euro amid Fed speculation

Pound Drops

Sterling declined versus most major peers after a report showed the U.K. services sector unexpectedly shrank in December. The pound fell 0.2 percent to $1.6068 and touched $1.6010, its lowest level since Dec. 7.

The pound weakened 0.7 percent over the past three months, the biggest loser after the yen among 10 developed-nation currencies monitored by the Bloomberg Correlation-Weighted Indexes. The Japanese currency slid 12 percent, while the dollar gained 0.2 percent.

The yen headed for an eighth week of losses against the dollar, the longest losing streak since February 1989, tumbling 2.4 percent since Dec. 28. Even so, it’s still stronger than its 10-year average of 101.22 per dollar.

Japan’s newly installed Prime Minister Shinzo Abe said on Jan. 1 the most urgent issue for his country was to break out of currency appreciation and deflation. “Bold” monetary policy is one of the three prongs of his economic measures, he said.

Policy Meeting

The Bank of Japan will hold its first 2013 policy meeting Jan. 21-22 after expanding its asset-purchase program by 10 trillion yen ($113 billion) at its last session on Dec. 20.

U.S. employers added 155,000 workers last month following a revised 161,000 advance in November that was more than initially estimated, Labor Department figures showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg was for a gain of 152,000.

The dollar reached a two-week low versus the euro on Jan. 2 as safety demand ebbed a day after Congress approved a bill that made income-tax cuts from the George W. Bush-era permanent for most workers. The legislation broke a yearlong impasse over how to avert $600 billion in automatic tax boosts and spending cuts that were set to start taking effect this year.

The greenback gained yesterday versus most major peers as speculation that U.S. policy makers will struggle to reach agreement on raising the nation’s $16.4 trillion debt ceiling fueled demand for safety.

Fed Purchases

The dollar extended gains yesterday after minutes of the Fed’s Dec. 11-12 meeting showed that board members said they’ll probably end the central bank’s $85 billion in monthly bond purchases some time in 2013. The Fed bought $2.3 trillion of Treasury and mortgage-related debt from 2008 to 2011 in two rounds of quantitative easing.

The central bank said Dec. 12 it would hold borrowing costs low “at least as long” as the unemployment rate remains above 6.5 percent and inflation projections are for no more than 2.5 percent. The jobless rate had stayed above 8 percent since February 2009 until it broke the trend in September.

Bloomberg News

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