The dollar climbed to a two-month high versus the yen on Thursday after minutes from the Federal Reserve’s latest meeting showed officials felt they might be able to start scaling back its stimulus at one of its next few meetings.
Also helping underpin the dollar, the euro was downed by talk of more European Central Bank policy easing, shedding all of its gains made against the greenback over the past week.
“While this is a re-iteration of the Fed’s data dependency bias, the overall tone of the minutes is somewhat more hawkish than anticipated, suggesting the Fed can react quickly to any improvement in the data flow,” BNP Paribas analysts wrote in a note to clients.
The dollar rose as high as 100.53 yen – just below its September peak of 100.62 – and last stood at 100.37, as U.S. long-term bond yields shot up to two-month highs following the minutes of the Fed’s October 29-30 meeting.
“The chance that the Fed will taper its stimulus has started to feel realistic again. It could be as early as December although that will all depend on the next payrolls data,” said a trader at a Japanese bank, referring to the closely watched jobs data due early next month.
The dollar index rose to a one-week high of 81.166 .DXY, having climbed 0.5 percent on Wednesday in its biggest one-day gain in about two weeks.
The euro slipped 0.1 percent in Asia to $1.3425 after having skidded 0.7 percent the previous day, snapping an uptrend from the November 7 low of $1.3295.
The common currency came into the crosshairs of investors after a Bloomberg report said the ECB was considering cutting its deposit rate, one of its two key interest rates, to below zero.
That would make it highly unattractive for banks to park cash at the ECB and, hopefully, force them to lend instead. The aim would be to ultimately fuel a stronger economic recovery.
“Although the report does little in clarifying the balance of support on the Governing Council for such a move, it is another indication that lower inflation has strengthened the position of the doves,” BNP added.
An ECB spokeswoman declined to comment on the unsourced report, while another central bank official told Reuters that the ECB, euro zone countries’ national central banks, and corporate lenders have adjusted their internal systems to cope with negative deposit rates should they come.
“But in contrast to the spring when such an option was heavily debated, the appetite for this has waned recently,” the official said.
In any case, investors were looking for an excuse to take profits on the euro and latched onto the news.
The euro stood at 134.87 yen, having fallen more than a full yen from a four-year high of 135.95 yen on Wednesday.
The yen’s gains could be limited, however, as investors have been happy to use the yen as a funding currency to buy higher-yielding assets thanks to the Bank of Japan’s ultra-loose monetary policy.
As expected, the BOJ maintained its two-year asset purchase program on Thursday.
Elsewhere, the Australian dollar slid to a one-week low of $0.9294 after the Flash Markit/HSBC Purchasing Managers’ Index (PMI) suggested activity in China’s vast factory sector slowed in November as new export orders shrank.
The Aussie could stay under pressure in the near term with Reserve Bank of Australia Governor Glenn Stevens likely to talk down the currency once again at a speech due at 0905 GMT.
Source : reuters
