Reuters logo
FOREX-Dollar pauses after Fed-led surge
March 20, 2014 / 8:51 AM / 4 years ago

FOREX-Dollar pauses after Fed-led surge

* Dollar gains halt after jump on Fed chief’s comments

* Yellen signals rate rise possible in first half of 2015

* Euro steadies after overnight fall

* Dollar strength helps push China’s yuan to one-year low

By Patrick Graham

LONDON, March 20 (Reuters) - The dollar steadied against its major currency peers on Thursday after being jerked higher overnight by a surprise message from Federal Reserve head Janet Yellen that rises in U.S. interest rates are not as far away as most had thought.

Yellen said the Federal Reserve will probably end its massive bond-buying program in the U.S. autumn, and could start to raise interest rates around six months later, sooner than the consensus of market expectations.

The dollar, whose strength this year was one of the big bets of many banks in January, has struggled so far in 2014, weighed down by a rough winter that has at least temporarily cooled jobs growth and other indications of a broadening economic recovery.

The jury was still out on Thursday as to whether Yellen’s comments are a turning point in that debate with many players saying the euro already looked to be recovering a foothold.

”Looking at the performance of markets this morning, there is no real follow through,“ said Simon Derrick, a strategist with Bank of New York Mellon. ”If anything the euro still feels marginally bid.

”People are looking for reasons why the range should break.

I don’t think Yellen was the thing to do it.”

After gaining sharply after the Fed’s statement and news conference, the dollar was broadly flat against the euro and yen compared to Wednesday’s U.S. close early in Europe.

Still, if the heart of the argument for dollar strength this year is a rise in the return on U.S. Treasuries then Yellen’s comments certainly delivered. The benchmark Treasury yield steadied at 2.748 percent in Asian trade, after jumping 9 basis points to 2.77 percent on Thursday.

Stephen Gallo, a strategist with Canadian bank BMO, said there was certainly more room for the dollar to gain against its Canadian counterpart and others. It was roughly a third of a percent higher against the Canadian, Australian and New Zealand dollars.

“You’re going to see a firmer tone for the time being,” Gallo said.

“I would look for the dollar to remain strong against the weaker currencies. We may have more difficulty against the euro and sterling.”

The Canadian dollar slid to a 4-1/2 year low of C$1.1273 against its U.S. counterpart and was last at C$1.1256, while the Australian dollar fell back below 91 U.S. cents and was last at $0.9023.


China’s yuan plunged to a one-year low against the dollar early on Thursday after the nation’s central bank set a lower guidance for the currency, largely in line with the greenback’s sharp rise on the Fed surprise.

It was the yuan’s second consecutive daily fall of more than 1 percent from the central bank’s midpoint, after China announced over the weekend it would double its currency’s permitted trading range to 2 percent.

The overnight yield spike helped the dollar index mark its biggest one-day move in over a month, to a peak of 80.111, its highest since March 6. It was last at 79.959.

The dollar bought 102.38 yen, not far from its nearly one-week high of 102.69 yen touched on Wednesday.

Markets all but ignored Yellen’s emphasis that rates will stay low for a while and could end up staying lower than normal “for some time” even after the economy regains its health given lasting scars from the financial crisis.

That prompted some analysts to warn that this dollar rally could fade just as quickly as it began, in the days ahead.

“There may be some effort by Fed officials or sources to downplay the six-month time-frame comment,” BNP Paribas analysts wrote in a note to clients.

A Reuters poll of 17 primary dealers found 10 still expected the first hike to come in the second half of 2015, and four continued to tip 2016.

Yellen’s remarks followed the Fed’s widely expected move to reduce its monthly purchases of U.S. Treasuries and mortgage-backed securities to $55 billion from $65 billion. (Additional reporting by Ian Chua and Lisa Twaronite; Editing by Toby Chopra)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below