Dollar rises as economic data above forecasts bolsters Fed view

Option Positions

Trading in over-the-counter foreign-exchange options totaled $23.7 billion, compared with $32.2 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $4.3 billion, the largest share of trades at 18%. Euro-dollar options were the second most-actively traded, at $3.4 billion, or 14%.

Dollar-yen options trading was 41% below the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was average.

Volatility in currencies surged since the Fed signaled last week it may start reducing stimulus this year. JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency option premiums, was at 11.52% after rising to 11.96% yesterday, the highest since January 2012.

Fed Policy

Chairman Ben S. Bernanke said June 19 the Fed may begin tapering bond purchases this year and end them in mid-2014. The central bank has been buying $40 billion of mortgage-backed securities and $45 billion of U.S. government debt each month to put downward pressure on borrowing costs.

“What we’re talking about here is dialing back,” Richard Fisher, president of the Fed Bank of Dallas, said in London yesterday. “The word ‘exit’ is not appropriate here,” he said. Minneapolis Fed President Narayana Kocherlakota said yesterday the Fed must emphasize in its statement that policy will remain accommodative “for a considerable time.”

Bookings for goods meant to last at least three years climbed 3.6% for a second month, the Commerce Department reported today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 3% increase.

Confidence among U.S. consumers climbed in June to 81.4, the highest level in more than five years, exceeding all estimates in a Bloomberg survey and signaling spending will probably accelerate after cooling this quarter. The median forecast of 77 economists surveyed by Bloomberg called for a reading of 75.1.

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