Dollar Climbs In Fed’s Wake, Extends Gains Vs. Yen

The U.S. dollar climbed Thursday, building on gains after the U.S. Federal Reserve said it may slow the pace of bond purchases by the end of the year.

The ICE dollar index  , which tracks the greenback’s performance against six rivals, rose to 81.557 from 81.301 late Wednesday in North America.

The greenback  on Thursday extended its more than 1% gain against the Japanese yen with its push to ¥97.03. Meanwhile, the euro  fell to $1.3260 from $1.3294.

The British pound  also fell, trading at $1.5437 from $1.5482.

The WSJ Dollar Index , which uses a slightly wider comparison basket, rose to 73.67 from 73.39.

Included in the WSJ Dollar Index is the Australian dollar, which was hit hard after the Federal Reserve said if the U.S. economy improves in line with its forecasts then it will have scope to reduce the pace of monthly bond purchases. The purchases, directed at stimulating growth, are currently set at $85 billion a month.

The Aussie  was knocked down to 92.49 U.S. cents from 95 cents Tuesday. The Aussie hadn’t traded below 93 cents since September 2010, according to FactSet data.

“[A]nyone wanting to know where the AUD/USD is headed needs to firmly have a view on the U.S. fixed income market,” IG chief market strategist Chris Weston wrote to clients Thursday.

If the yield on the U.S. 10-year note  is headed for 3% “over time then the [currency] pair will head firmly below [90 U.S. cents], despite every hedge fund and leveraged player being max short already,” said Weston.

A currency with a higher yield tends to appreciate faster than its rivals. Treasury yields soared as prices fell Thursday, pushing the yield on the 10-year note to 2.334%, the highest yield since March 2012.

While the dollar had pulled back recently on uncertainty about the Fed’s plans for bond buying, analysts have said the purchases, or quantitative easing, overall have weighed on the dollar’s value.

The Fed said it may end asset purchases around mid-2014, depending on economic data.

Source : Marketwatch