Dollar falls as Fed taper bets recede, currency volatility wanes

Calmer Markets

JPMorgan Chase & Co.’s Global FX Volatility Index slid to a seven-week low. The measure of currency fluctuations declined to 9.79%, the least since May 29. It touched a one-year high of 11.96% on June 24.

The decrease in volatility shows markets have calmed after concern a reduction in Fed stimulus could start too early and damage global growth prospects, according to Christian Lawrence, a foreign-exchange strategist at Rabobank International in London.

“It’s a reversal of the spike,” he said. “Tapering is not tightening and it seems it took several weeks for this lesson to sink in.”

The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, retreated 0.1%, set for a 0.4% decline this week.

“What’s going to be key, particularly following Bernanke’s comments over the last couple of weeks, is the rise in the dollar is going to be very data-dependent,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “We think the dollar will continue to strengthen. Actually, at the moment there is quite a good opportunity” to buy the dollar, he said.

Sneyd spoke in an interview on Bloomberg Television’s “On The Move” with Manus Cranny.

Japanese Election

The yen headed for a weekly slide against all of its 16 most-traded peers tracked by Bloomberg. It dropped 1.6% against the euro, the biggest drop in four weeks, and 1% versus the dollar.

Japanese Prime Minister Shinzo Abe’s Liberal Democratic Party and its coalition partner New Komeito are on track to win more than 65 of the 121 upper house seats being contested, according to a poll published in the Nikkei newspaper on July 17. Victory will give the parties control of both chambers of parliament, strengthening the prime minister’s ability to carry out a three-pronged plan of monetary easing, fiscal stimulus and deregulation known as Abenomics.

“The three arrows of Abenomics have clearly gained traction in popularity, and one of the arrows is easy monetary conditions contributing to a weaker yen,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. A positive outcome for Abe will help him push through further easing that contrasts with “a stronger U.S. economy and tapering of their quantitative policy measures.”

Rupiah Retreats

The rupiah dropped 0.2% to 10,078 per dollar, after touching 10,126, the weakest since September 2009, according to prices from local banks compiled by Bloomberg.

“We expect pressure on the spot rate to continue,” said Thio Chin Loo, senior currency analyst at BNP Paribas SA in Singapore. “Bank Indonesia is releasing its hold. This allows pent-up dollar demand to go through.”

Bank Indonesia Deputy Governor Perry Warjiyo said last week that the monetary authority has supplied dollars to the market in the past two-to-three months while allowing the rupiah to slowly retreat.

Australia’s dollar advanced for the first time in three days as China, the South Pacific nation’s largest trading partner, said it would remove limits on lending rates.

The Aussie strengthened 0.5% to 92.15 U.S. cents.

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