Dollar consolidates after hitting 1-month highs
SYDNEY (Reuters) - The U.S. dollar steadied on Wednesday, having hit a one-month high on a basket of currencies while the euro and growth-linked currencies were subdued, hurt by profit-taking by funds ahead of year-end book closing.
Traders said currencies are likely to consolidate ahead of a raft of central bank meetings. The U.S. Federal Reserve ends its two-day meeting on Wednesday and, while it is expected to keep rates unchanged, there is speculation it might drop or alter its pledge to keep rates low for an "extended period."
"There is some speculation that they will soften their reference to 'extended period' and I agree that they'll have to do that soonish, yet I am not convinced they will do it at this meeting," said Adam Carr, senior economist at ICAP.
"It's the ongoing risk though and there is clearly a very vigorous debate occurring at the Fed," he added.
The dollar index .DXY, a measure of the greenback against a basket of six currencies, was up 0.05 percent at 76.327, after climbing as far as 76.817, its highest since early October.
Some traders said the failure to break past the 76.81 level, the 55-day moving average, meant it was still in a bear trend that stretches back to March. Only, a deterioration in the global economic outlook or a clear warning from the Federal Reserve that rate increases were coming would change that.
The euro was steady at $1.4720, having lost nearly 0.4 percent on Tuesday, while the yen held ground around 90.30 per dollar.
Still, recent swings in currencies has boosted implied volatility, a measure of a currency's movement in either direction and a barometer of risk sentiment. The higher the vol, the greater the fear in the market.
Implied vols rose across the board and in all tenors. One-month euro/dollar vols, advanced to as high as 12.50 and last traded at 12. Similarly, the one-month contract on Aussie/dollar implied vol traded at 17.5, up from 15.95 late last week.
Traders said key risk events particularly the U.S. non-farm payrolls data due on Friday and lingering fears about the banking sector, are likely to underpin both the dollar and the yen.
News about the European Commission's estimates of bank losses renewed anxiety over the sector's health. The EU Commission quoted results of stress tests in the banking sector, published in early October, which said losses could amount to 400 billion euros ($585.2 billion) in 2009-10.
Also, the European Central Bank and the Bank of England hold policy meetings on Thursday. <ECB/INT> and <BOE/INT>.
Aussie inched up to $0.9040 from around $0.9020 late in New York on Tuesday, on the back of stronger metal price. Markets will eye September retail sales data due at 0030 GMT.
A strong number could see investors price in greater chances of a 25 basis points of rate hike in December and lift the Aussie.
(Editing by Wayne Cole)
