Dollar hits lowest in 3 weeks as sales forecast damps taper bets

Yuan, Rupiah

China’s yuan rose to a 20-year high after the central bank raised the currency’s daily reference rate to the highest since a peg to the greenback was scrapped in July 2005. Indonesia’s rupiah rose the most in six weeks.

The yuan gained 0.1% to 6.0434 per dollar at the close in Shanghai, according to China Foreign Exchange Trade System. It reached 6.0424, the strongest since China unified the official and market exchange rates at the end of 1993.

The rupiah gained 0.9%, the most since Dec. 2, to 12,050 per dollar, prices from local banks show.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, fell 0.2% to 1,021.53 after decreasing 0.4% on Jan. 10, the steepest drop since Oct. 22.

Fed policy makers said Dec. 18 they will cut monthly bond buying to $75 billion from $85 billion, citing improvements in the labor market. They next meet on Jan. 28-29.

Market ‘Doubts’

“I’m concerned the retail sales will be soft, so if anything, the risk is dollar-yen will still go lower in the near end before it goes higher,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a phone interview. “I still think the Fed is going to taper again in January, but the price actions suggest the market has doubts. Dollar-yen has caught up in the story.”

Atlanta Fed President Dennis Lockhart said today the December tapering move acknowledged progress in U.S. employment and reflected improving confidence in outlook.

“I would support similar tapering steps over the course of this year,” Lockhart said in text of speech in Atlanta.

Charles Plosser from the Philadelphia Fed and Richard Fisher from Dallas speak tomorrow. Plosser and Fisher are voting members of the Federal Open Market Committee this year.

Fed policy makers will trim asset purchases in $10 billion increments over the next six meetings before ending them by December at the latest, according to the median forecasts of economists surveyed by Bloomberg on Jan. 10.

Payrolls Lag

A 74,000 increase in December payrolls lagged behind the 197,000 advance estimated by economists and compared with the most pessimistic forecast for 100,000, Labor Department figures showed on Jan. 10. The unemployment rate declined to 6.7%, the lowest since October 2008, as more people left the workforce.

Retail sales in the world’s largest economy climbed 0.1% last month, slowing from a 0.7% increase in November, according to the median forecast of economists in a Bloomberg News survey. A report on Jan. 16 will show inflation stayed below the Fed’s 2% target last month, another Bloomberg survey showed.

“This is simply a dip in the longer-term strong U.S. growth trend, rather than a meaningful shift in economic developments,” Morgan Stanley analysts led by Hans Redeker in London wrote in a note to clients. The dollar “should sell off over the week, but in most cases we would buy in dips,” they wrote.

www.bloomberg.com

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