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Fed Bets Drive US dollar Higher

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Fed Bets Drive US dollar Higher

Expectations the Federal Reserve could begin scaling back the pace of bond purchases sooner than expected kept the US dollar elevated Friday. The world’s favourite safe haven rebounded strongly in the second half of the week as market participants shift their attention to the FOMC policy meetings.

The US dollar advanced 0.1 percent against a basket of its major competitors amid a third consecutive month of declining wholesale prices. The Producer Price Index fell 0.1 percent in November, driven by low energy prices and waning demand internationally, according to the Labor Department. Weaker than forecasted inflation could keep the Fed’s taper plans on hold for another month, although the door to a January taper remains open.

The British pound fell toward the technical support at 1.6285 US, a loss of 61 pips. The GBPUSD is trading at two-and-a-half week lows ahead of next week’s active news wire, headlined by several batches of economic data and the Bank of England’s last rate decision of 2013.

Elsewhere in Europe, the common currency declined for a second consecutive day, down 29 pips to 1.3722 US. The euro area was unable to translate recovery into job growth in the third quarter, according to the European Commission, which reported no change to the employment situation between Q2 and Q3.

The greenback was less successful against the Japanese currency, falling from a multi-year high of 1.0392 yen. The USDJPY pair was unable to hold its gains after disappointing US PPI data. The dollar also failed to extend its rally against the commodity peers; the Canadian dollar took back 42 pips to send the North American pair to 1.0602 CAD. Down-under, the Aussie bounced back after a triple-digit loss, rallying 27 pips to 0.9853.

The FOMC will weigh the latest batches of employment and inflation data next week. The two-day meetings will take place in Washington on December 17-8.

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