The U.S. dollar edged lower against the euro Thursday ahead of the confirmation hearing for Federal Reserve chair nominee Janet Yellen that investors will monitor for any indication on when the central bank will start slowing the pace of monetary stimulus.
The euro bought $1.3470, up from $1.3458 late Wednesday in North American trade.
The modest move helped put the ICE dollar index , a measure of the U.S. unit against six other currencies, at 80.927, down from 80.938. The WSJ Dollar Index , however, rose to 73.27 from 73.15.
Yellen plans to tell the Senate Banking Committee later Thursday that she supports the central bank’s current bond-buying program and that more work is needed to encourage economic growth, according to the text of her opening remarks, released Wednesday ahead of her live question-and-answer session with committee members.
“Her remarks were short and did not offer much new, although FX markets were happy to run with the dovish sound bites and sell the U.S. dollar,” with the euro, the British pound and the Australian dollar among the currencies that advanced against the greenback, RBC Capital Markets currency strategist Michael Turner said to clients Thursday.
The Fed’s program of buying $85 billion a month in Treasury bonds and mortgage-backed securities has been seen as putting pressure on the greenback’s value. Many analysts consider Yellen as more dovish than Federal Reserve Chairman Ben Bernanke.
But the Fed has also indicated that it plans to reduce the amount of debt it buys each month, with improvement in the labor market as a key factor in its timing decision. The dollar jumped last Friday after a better-than-expected October jobs report spurred speculation that the Fed may begin reducing stimulus at their December meeting.
“In our view, it is a good idea to change the policy-tool focus from quantitative easing, where efficacy is declining and likely costs are rising, to forward guidance, which is probably less costly,” wrote Handelsbanken Capital Markets economist Petter Lundvik in a monthly macro update.
The Federal Open Market Committee could start tapering stimulus in the next three meetings, even though job gains are likely to remain fairly weak, said Lundvik.
“The prevailing strong growth makes it easier to taper [quantitative easing] and shift policy to rely more on forward guidance,” Lundvik said.
The U.S. economy expanded at a faster-than-expected pace in the third quarter, and ISM surveys suggest even stronger growth in the fourth quarter, he said.
In other market action, the dollar gained against the Japanese yen following Japan’s third-quarter growth report. Gross domestic product expanded at an annualized pace of 1.9%, outstripping the 1.7% average growth estimate from economists polled by The Wall Street Journal.
Growth in the period, however, slowed sharply from the first and second quarters. The dollar fetched ¥99.62, compared with ¥99.19 just ahead of the release. The dollar had bought ¥99.43 late Wednesday.
The British pound , meanwhile, traded at $1.6035 versus $1.6027, and the Australian dollar rose to 93.48 U.S. cents from 93.26 U.S. cents.
Source : Marketwatch
