Reuters: US Dollar Report: FOREX-Dollar near 10-mth high as Fed dove foreshadows QE wind-down

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FOREX-Dollar near 10-mth high as Fed dove foreshadows QE wind-down May 17th 2013, 00:35 Thu May 16, 2013 8:35pm EDT * San Francisco Fed's Williams say Fed could end QE this year * Dollar index near its July peak * Dollar/yen near 4 1/2-year high, euro/dollar near 6-week low * Aussie pressured the most, implied volatility spikes By Hideyuki Sano TOKYO, May 17 (Reuters) - The U.S. dollar held firm near a 10-month high against a basket of major currencies on Friday after a regional Fed chief, long seen as a policy dove, said the Fed could begin easing up on stimulus this summer and end it late this year. Remarks by John Williams, president of the Federal Reserve Bank of San Francisco, moved markets as investors see his thinking close to that of the Fed's top officials such as Chairman Ben Bernanke and Vice Chair Janet Yellen. "At the previous policy meeting, the Fed essentially said whether it will reduce or expand its bond buying is 50-50. But markets are now suspicious that Bernanke may signal it's something like 55-45 when he testifies in the congress on May 22," said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ. The dollar index , which measures the currency's value against a basket of six major currencies, stood at 83.736, near 10-month high of 84.094 set on Wednesday. A break of its July peak of 84.100 could open the way for a test of 84.929, a 76.4 percent retracement of its fall from 2010 peak of 88.708 to near three-year low of 72.696 hit in 2011. But Mitsubishi's Uchida said barring further evidence the Fed is moving towards scaling back stimulus, the dollar index could peak out around the current level. "U.S. bond prices gained sharply yesterday despite William's comments. Each market has its own interpretation now and there's no broad consensus on the Fed's stance yet," he said. Against the yen, which has been slipping constantly since Japan started pushing for aggressive monetary easing in November, the dollar fetched 102.22 yen, near Wednesday's 4 1/2-year high of 102.77 yen. Remarks by San Francisco Fed's Williams came as hawks at the Fed, such as Dallas Fed chief Richard Fisher, called for stopping the Fed's buying of mortgage-backed bonds, citing improvements in the housing market. Although Williams did say he wanted to see further job gains to have more conviction, his comments helped the dollar wipe out losses triggered by soft data on U.S. regional manufacturing activity and employment. Factory activity in the U.S. mid-Atlantic region contracted in May as new orders fell to their lowest level in almost a year. Other data on Thursday showed a spike in new claims for jobless benefits last week as well as soft underlying inflation that could point to weak demand in the economy. A resurgent dollar pushed the euro near six-week low. The common currency stood at $1.2882, near six-week low of $1.2843 touched on Wednesday. Speculation about the Fed's possible exit from stimulus is having the most pronounced impact on the Australian dollar, which has enjoyed the status of highest-yielding major for years. The Australian dollar traded at $0.9822, after hitting an 11-month low of $0.9796 on Thursday. The Aussie was also hurt by a a fall in commodity prices in recent months raises concerns about slowdown in China, the biggest buyer of Australia's natural resource exports. Implied volatilities on the Aussie have shot up in the past few days, with one-month volatility near an eight-month high , suggesting investors are expecting mercurial trade ahead. Link this Share this Digg this Email Reprints

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