Dollar Ends Week Down Against Euro, Yen on Uncertainty Over Fed

June 12, 2015 Wall Street Journal

Greenback little changed Friday; for week, it fell 1.3% against euro and 1.8% against yen

By James Ramage

The dollar fell against the EURO and yen this past week, as investors prepared themselves for the possibility that the Federal Reserve won’t deliver clearer signals on its interest-rate plans at its next meeting.

Over the week’s five sessions, the dollar retreated 1.3% against the common CURRENCY, with one EURO buying $1.1268 in late-afternoon trading Friday. For the day, the dollar pared earlier losses to end 0.1% lower against the EURO.

Against the Japanese currency, the greenback shed 1.8% for the week, reaching ¥123.40 on Friday, TRADING FLAT for the day. On June 5, the dollar had hit its strongest level against the yen in 13 years.

The Wall Street Journal Dollar index, which compares the greenback against a basket of 16 widely TRADED CURRENCIES, lost 1.4% for the week, falling to 86.30.

The dollar’s path illustrates the degree of uncertainty that TRADERS and investors have concerning the Fed’s timing on raising short-term interest rates, which would boost demand for the buck.

Many in the market braced for the conclusion of the Federal Open Market Committee’s two-day policy meeting on Wednesday, when the central BANK could acknowledge the U.S. economy’s recent progress yet still adopt a cautious stance on interest rates, said Karl Schamotta, director of currency risk and strategy at Cambridge Global Payments, which helps corporations hedge their currency risk.

Consumers appear more confident, with strong retail sales in May and the University of Michigan preliminary June sentiment index rising to 94.6, from an end-of-May level of 90.7. Also in May, the producer-price index, which gauges prices that businesses receive for their goods and services, rose a seasonally adjusted 0.5%.

“Data over the last two weeks have been good, and PPI and the [University of Michigan] SURVEY came in strong today,” said Carl Forcheski, director of corporate currency sales at Société Générale. “We’re seeing the bounce-back from the first quarter we were hoping for.”

Investors had poured into the dollar and U.S. assets over much of the past year in the belief that the U.S. economy would strengthen and the central bank would raise borrowing costs for the first time since 2006. Tighter CREDIT conditions would boost returns on dollar-denominated assets, raising the greenback’s allure.

However, investors’ faith in the dollar was weakened after the U.S. economy slogged through a soft start to 2015. The greenback’s seven-month rally halted, and investors pushed back their expectations of higher interest rates as early as June to later in the year. At present, many investors expect the Fed to raise rates at its September meeting.

“It’s expected that the FOMC will meet and throw a wet blanket over expectations for clearer signals on interest rates,” Mr. Schamotta said of Wednesday’s policy meeting. “Market participants don’t want to be extremely long the dollar going into that meeting.”

Recently, economic gauges—including those evaluating the labor market, retail sales, consumer confidence and inflation—have started to show varying degrees of improvement. In particular, jobs numbers for May and retail sales have given investors more confidence that the Fed will offer a positive assessment of the economy.

Sales at retailers and restaurants increased 1.2% in May from the prior month, and the Commerce Department on Thursday raised its figures for March and April to show stronger consumption than previously estimated. Consumer demand is an important measure of the U.S. economy, although the Fed will also be looking at inflation, employment and wages in determining when to raise interest rates, which have been pinned near zero since 2008.

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