The Brazilian real climbed as the country’s unemployment rate fell to a record low in December, adding inflation pressure even as the central bank continues raising interest rates. The currency appreciated 1.1% to 2.4094 per dollar, the biggest increase since Jan. 10.
The greenback extended gains after the U.S. economy expanded at a 3.2% pace in the fourth quarter, matching the median forecast in a Bloomberg survey and followed a 4.1% advance in the prior three months, Commerce Department figures showed today in Washington. Consumer spending, which accounts for almost 70% of the economy, climbed 3.3%, the most since the fourth quarter of 2010.
The Fed said yesterday it will trim its monthly bond buying to $65 billion from $75 billion, sticking to its plan for a gradual withdrawal from departing Chairman Ben S. Bernanke’s unprecedented easing policy.
“Tapering came as expected and, interestingly, the Fed paid little heed on events in emerging markets,” said Peter Kinsella, senior currency strategist at Commerzbank AG in London. “This means it will take a significant negative feedback loop from emerging markets to the U.S. for the Fed to consider a change in policy.”
The dollar’s strength against the euro was driven partly by speculation that emerging-market central banks may take steps to prevent their exchange rates from falling further, according to Geoffrey Yu, senior currency strategist at UBS AG in London.
“If these central banks are getting ready for intervention, they would need to over-fund in dollars,” said Yu. “That may involve selling euro reserves into the U.S. currency.”
The euro declined as German inflation, calculated using a harmonized European Union method, was 1.2% in January, the Federal Statistics Office said today. Economists had predicted the rate would increase to 1.3%. Prices fell 0.7% from the previous month.
The European Central Bank’s Governing Council, which meets next week to agree on interest rates, has warned it could take action if the medium-term outlook for inflation in the currency bloc slows. While German prices typically drop in January compared with the holiday shopping season in December, this month’s decline was the steepest in four years.
The yen has advanced 4.5% this year, the biggest gain in Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar gained 1.6% and the euro is little changed. Canada’s dollar is the worst performer, falling 3.8%.