Sun, Dec 27, 2015 page15

• US dollar bulls retreat as Fed signals slow tightening

  • Bloomberg and staff writer, with CNA
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  The US dollar is in a funk.

  The US currency is headed for its biggest monthly loss since June after the US Federal Reserve raised its target from near zero on Dec. 16 and underscored that it would proceed gradually with additional interest-rate increases.

  The message from the Fed, combined with European Central Bank stimulus measures that were less robust than some investors anticipated, have led dollar bulls to retreat. Large speculators such as hedge funds trimmed futures bets on greenback gains the past three weeks, Commodity Futures Trading Commission data show.

  “The expectation is that we’re not going to see aggressive tightening and that’s really impacting the dollar — that’s what we’re going to see” going into year-end, said Sireen Harajli, a currency strategist at Mizuho Bank Ltd in New York.

  The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, has lost 0.9 percent this month. The greenback is down 3.7 percent at US$1.0971 per euro and 2.3 percent to ￥120.32 as of Friday in Tokyo.

  The index had surged about 9 percent this year through last month as investors anticipated that the Fed would tighten policy while counterparts in Europe and Japan carry out unprecedented stimulus.

  Yet investors are looking past the Fed’s liftoff and contemplating a landscape of low US interest rates for years to come. Traders expect about two Fed rate increases next year, futures indicate. That is short of the four boosts that Fed projections indicate.

  Hedge funds reduced net futures positions that profit from gains in the dollar versus a basket of eight currencies to 322,224 contracts as of Dec. 15, the smallest in about a month, according to Commodity Futures Trading Commission data.

  “There is still some year-end rebalancing for many large portfolio managers away from the dollar,” said Matt Weller, an analyst at Gain Capital Holdings Inc.’s Forex.com unit in Grand Rapids, Michigan. “That could be a headwind for the next couple of weeks.”

  Markets across Asia except in Japan, China, Taiwan, Thailand and Vietnam were closed for holidays.

  The offshore yuan headed for the biggest weekly gain in two months on speculation demand for the currency will increase after Chinese authorities announced they would expand trading hours in the mainland and move to liberalize the capital account.

  For the week, the currency is up 0.3 percent, the most since the period ended Oct. 30.

  In Taipei, the greenback rose against the New Taiwan dollar on Friday, gaining NT$0.003 to close at the day’s high of NT$33.005 in a slow session as many foreign traders were away from the market for the Christmas holiday, dealers said.

  Taiwan’s central bank entered the market again to prop up the US dollar, which came under pressure as local exporters rushed to sell the US currency for NT dollars to meet their need for funds with the year coming to an end, they said.

  The greenback opened at NT$32.842 and moved to a low of NT$32.721 before rebounding. However, with many foreign traders absent, turnover only reached US$232 million.

  Another factor weighing against the greenback on Friday was the net purchase of NT$2.09 billion in shares on the Taiwan stock exchange, which added to demand for the local currency.

  The US dollar fell below the NT$32.8 mark at one point, but Taiwan’s central bank intervened to push it back to the NT$33 level, dealers said.

  It was the seventh consecutive session in which the US dollar closed above NT$33, a level the market believes the central bank wants to maintain.
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