Dollar advances as Fed tapering in September still seen likely
NEW YORK (Reuters) - The dollar gained across the board on Wednesday after minutes of the Federal Reserve's meeting in July suggested that the U.S. central bank was still on track to taper its asset-buying program next month.
The minutes showed members of the Federal Open Market Committee had different opinions as to when the Fed should start winding down its bond purchases. The overall view, however, was that the minutes did not materially change the market's expectation of a September tapering.
"The tone of the minutes do not meaningfully reduce the risk of a September taper. They will likely be seen as positive for the dollar and negative for bonds and stocks," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The euro hit a session low against the dollar at $1.3334 after the release of the Fed minutes and was last quoted at $1.3347, down 0.5 percent. On Tuesday, it reached $1.3452, according to Reuters data, the highest since February 14.
FOMC members also acknowledged that the unemployment rate has dropped considerably since the third round of quantitative easing began.
Analysts said the August nonfarm payrolls data, due on September 6, will be closely watched by investors and policymakers to determine whether the improvement in the labor market is enough to justify scaling back the stimulus.
The dollar index, which measures the greenback versus a basket of six currencies, rose 0.6 percent to 81.362 .DXY.
Against the yen, the dollar rose to a session high at 97.98 and last changed hands at 97.78, up 0.5 percent.
The yen earlier fell after Bank of Japan Governor Haruhiko Kuroda said he will not hesitate to provide further monetary stimulus if downside risks to the economy increased.
Analysts at Morgan Stanley said they maintain their bullish dollar/yen outlook and "consider pullbacks as providing buying opportunities." They added: "The apparent change in tone by the BoJ's Kuroda, suggesting that they would not hesitate to ease if downside risks increase, is likely to help put the yen back on its weakening trend."
Growth-linked commodity currencies also extended their losses as global equity markets came under pressure. The Australian dollar was down 1.1 percent at US$0.8974. The New Zealand dollar slid 1.6 percent to US$0.7846.
In the options market, overnight implied volatility rose on growing uncertainty about the Fed's stimulus. Demand to hedge against excessive price swings usually rises during times of financial uncertainty.
A gauge of one-month euro implied volatility spiked to a three-week high of 7.8 percent, according to Thomson Reuters data.
Strategists said the euro's rise would be capped as the European Central Bank looks set on keeping interest rates at their current record low of 0.5 percent to support the economy.
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