FOREX-Dollar hits two-week peaks as U.S. data fuels Fed taper talk

Thu Aug 29, 2013 1:23pm EDT

Related Topics

* U.S. GDP, initial jobless claims data support Fed taper in
September
    * Dollar rises vs yen as Syria tensions ease
    * Dollar downside seen as limited on speculator position
    * Emerging currency relief also seen supporting case for Fed
tapering

    By Julie Haviv
    NEW YORK, Aug 29 (Reuters) - The dollar hit a two-week peak
on Thursday, and was on track for its largest daily gain against
the euro in more than four months after strong U.S. data
emboldened the view that the Federal Reserve could next month
begin winding down its stimulus program.
    Investors bought the greenback after data showed the U.S.
economy accelerated sharply in the second quarter thanks to a
surge in exports. U.S. GDP grew at a 2.5 percent annual rate in
the April-June period, more than double the pace clocked in the
prior three months. 
    "This is a good report for those who expect the Fed to taper
in September," said Vassili Serebriakov, currency strategist at
BNP Paribas in New York.
    "One of the key concerns that the Fed has voiced recently
has been the dichotomy between firm employment and soft GDP
growth. This should ease some of those concerns," he said.
    Still, Serebriakov doubted that the reports would sway the
minds of some market participants who believe the Fed will not
begin to scale back its stimulus until later.
    BNP Paribas, for one, has long held the view that the Fed
will start winding down its asset purchases in December, noting
that the U.S. economy is not yet at the point that would justify
a tapering, he added.
    Other data showed the number of Americans filing new claims
for jobless benefits fell last week. The drop in unemployment
benefits was a potential sign of faster hiring in August. 
    Should the next U.S. nonfarm payrolls report - due for
release on Sept. 6 - show strong gains, it will cement
expectations the Fed will scale back its asset-buying plan at
its next policy meeting next month.
    Bob Lynch, head of G10 FX strategy at HSBC in New York, said
he is not sure whether or not the second-quarter GDP data will
play a major role in the Fed's policy deliberations.
    "Much of the 'later this year' tapering guidance from Fed
Chairman Bernanke and other Fed officials is predicated on an
expected rebound in growth in the second half of this year,"
Lynch said.
    "So in that regard, the revised Q2 GDP data are more
backward-looking and the upcoming growth numbers - and the Fed's
expectations - should play the bigger role in the policy
debate," he added.
    The dollar was last 0.7 percent higher against a basket of
currencies  at 82.018, after earlier hitting 82.067, its
highest since Aug. 5. Against the safe-haven Japanese yen, the
greenback traded up 0.7 percent at 98.34 yen.
    Hedge funds and other speculative players in the foreign
exchange market have grown defensive on the dollar over the past
month, but that bearish trend could be a risky bet with the
dollar's downside looking increasingly limited.  
    The euro, meanwhile, plunged 0.8 percent against the dollar
to $1.3234, on pace for its worst daily performance since
mid-April. It earlier touched a low of $1.3218, a two-week
trough.
    Market sentiment was still cautious, but prospects of an
imminent Western intervention looked set to be delayed until
U.N. investigators report back. 
    Some said reduced tension in emerging markets also supported
the U.S. currency as it reinforced bets the Fed would crimp
monetary stimulus soon. 
    "A slight easing of the tensions in Syria and emerging
markets, has helped the dollar," said Simon Derrick head of
currency research at Bank of New York Mellon.
    "Over the last few weeks tensions in emerging markets were
seen as keeping pressure on the Fed to delay tapering which is
dollar negative. With emerging markets now doing a little
better, the dollar is higher."
    Emerging markets, the first to be hit by outflows of funds
as investors braced for an eventual end to the Fed's monetary
stimulus, have experienced more turbulence as the Syria crisis
makes investors even more risk-averse.
    While a debt auction in Italy was relatively successful,
borrowing costs for a new five-year bond rose as investors
remained wary about the coalition government's stability, which
weighed on the euro. 
    The euro's recent resilience is likely running out of steam,
according to the options market.
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