Dollar weakens as investors exit bullish bets

‘Underlying Trend’

“While the potential for speculative dollar-yen (FOREX:USDJPY) profit-taking remains substantial given yet another new high, the underlying trend of yen weakness should persist into the New Year,” Adam Myers, European head of currency strategy at Credit Agricole Corporate & Investment Bank in London, wrote in a note to clients. The dollar will rise to 106 yen by the end of the first quarter of 2014, he wrote.

The U.S. currency gained last week as the Fed said Dec. 18 it plans to cut monthly bond purchases in January to $75 billion from $85 billion. It reinforced assurances that it’s a long way from raising borrowing costs, saying the benchmark rate is likely to stay low “well past” the time that unemployment falls below 6.5%, particularly if inflation continues to run below its 2% goal.

The Fed has kept its benchmark rate at zero to 0.25% since 2008.

“The dollar is still basking in the support that tapering should provide through 2014, but there has inevitably been some profit taking among those exchange rates which saw the bigger recent moves,” said Daragh Maher, a currency strategist at HSBC Holdings Plc in London.

Market Measure

The dollar appreciated 3.8% and the euro climbed 8.3% this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen has weakened 15.1%, the largest decline, followed by the Aussie’s 12.1% drop.

Australia’s dollar may advance toward 89.50 U.S. cents as investors take profit on positions betting on Aussie declines, said Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney.

The Aussie rose 0.3% to 89.48 U.S. cents after gaining 0.6% on Dec. 20. It reached 88.21 on Dec. 18, the lowest level since August 2010.

The pound gained against the dollar after Bank of England policy maker Andrew Bailey said the central bank may take steps to prevent U.K. house prices from rising too quickly.

Central Bank

The Bank of England is “watching the housing market very carefully,” Bailey said, according to the Telegraph newspaper. The central bank may strengthen tests potential buyers must go through before getting home loans, the Telegraph reported Bailey as saying, citing an interview published on Dec. 21.

The pound climbed 0.2% to $1.6360 after rising to $1.6484 on Dec. 18, the highest since August 2011.

Thailand’s baht declined to the lowest level since 2010 after more than 1,000 anti-government protesters surrounded Prime Minister Yingluck Shinawatra’s home in Bangkok as she criticized the opposition Democrat party’s plan to boycott a Feb. 2 election.

The baht fell 0.2% to 32.680 per dollar after falling to 32.773, the weakest since March 2010.

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