The dollar rallied against the majority of its most-traded counterparts as Federal Reserve Governor Jeremy Stein said the central bank may make a decision in September about tapering monetary stimulus.
The yen fell to the weakest level versus the dollar since June 6 and 10-year Treasury yields rose as Fed officials sought to clarify policy on providing stimulus to the world’s biggest economy. The euro reversed gains and the International Monetary Fund said the currency made up the smallest share of allocated central-bank reserves since 2004.
Stein’s comments “really got Treasuries moving and got the dollar steam rolling,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview.
The dollar rose 1% to 99.28 per yen at 1:50 p.m. in New York. The greenback added 0.3% $1.3004 per euro. Japan’s currency weakened 0.7% to 129.10 per euro.
U.S. 10-year note yields rose five basis points, or 0.05 percentage point, to 2.52%.
Market Timing
South Africa’s rand has gained 1.8% to the greenback this month, while Australia’s dollar has declined 4.6%. This quarter, the euro has led all major gainers with a 1.4% increase, while the worst-performing Aussie has slipped 12.3%. The greenback is the best-performing currency in 2013 and the rand has plunged 14.5%.
India’s currency gained the most in nine months as investors reassessed projections for a reduction in U.S. stimulus. The rupee surged as much as 1.7%, the most since Sept. 21, before trading at 59.39 per dollar. That pared its drop this year to 7.4%.
The U.S. dollar was 62.2% of allocated reserves in the January-March period, compared with 61.2% the prior quarter, according to the IMF data. The euro’s share was 23.7%, compared with 24.2% in the fourth quarter of 2012, it showed.
Reserve managers around the world held about $194 billion in Australian and Canadian currencies, according to the first IMF data on the global holdings of the two currencies.
Reserve Balances
The Australian dollar was 1.63% of $6.05 trillion in identified official foreign-exchange reserves in the first quarter and the Canadian currency was 1.57% of the total, the IMF data showed.
Australia’s dollar declined 1.5% to 91.36 U.S. cents, reaching its weakest level since Sept. 8, 2010. Canada’s dollar fell 0.3% to C$1.0505 per U.S. dollar.
The Fed is providing more clarity about how it will wind down its $85 billion in monthly bond buying as unemployment falls toward 7%, he said.
The policy-making Federal Open Market Committee should “be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting -- as salient as these releases may appear to be to market participants,” the Fed’s Stein said.
The Thomson Reuters/University of Michigan said its final index of confidence eased to 84.1 this month from 84.5 at the end of May, which was the highest since July 2007. The median forecast in a Bloomberg survey of economists called for 83 in the gauge after a preliminary reading of 82.7. The MNI Chicago Report’s business barometer dropped to 51.6 this month from 58.7 in May, which was the highest in more than a year. The median forecast of 55 economists surveyed by Bloomberg was 55.
Dollar Strength
The Bloomberg U.S. Dollar Index, which tracks the dollar against 10 major currencies weighted by liquidity and trade flows, gained 0.4% to 1,041.21, reaching the highest level on a closing basis since May 28.
Trading in over-the-counter foreign-exchange options totaled $24.4 billion, compared with $29.9 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 $8.4 billion, the largest share of trades at 35%. Pound-dollar options were the second most actively traded, at $2.2 billion, or 9%.
Dollar-yen options trading was 3% above the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Pound-dollar options trading was 71% above 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, reached 11.02% after rising to 11.96% on June 24, the highest since January 2012.
