Dollar Advances as Fed Minutes Support Rate-Rise Speculation

The dollar rose for a fourth day versus the euro as minutes from the Federal Reserve’s latest meeting supported speculation policy makers will raise interest rates this year even as the European central bank adds stimulus.

A dollar gauge versus a broader range of peers slipped from the highest level since 2005 as the record showed officials expected inflation to keep falling near term due to lower energy prices and a stronger currency, and saw possible spillover from deterioration overseas. The euro fell to a nine-year low as consumer prices in the region declined, strengthening the case for sovereign-bond purchases by the ECB. The Mexican peso led global gains.

“I don’t see anything to suggest the U.S. dollar bull market should get bucked,” Matt Derr, a foreign-exchange strategist at Credit Suisse Group AG, said of the Fed minutes by e-mail. “They continue to note that falling oil is a net positive, they reduced the negative impact a stronger dollar would have, and noted that they could normalize rates with core inflation at current levels if the outlook was that they would rise back towards 2 percent.”

The dollar rose 0.4 percent to $ 1.1848 per euro as of 3:16 p.m. New York time and touched $ 1.1802, the strongest level since January 2006. The four-day streak of gains is the longest since November. The shared currency climbed 0.2 percent to 141.05 yen after slipping 2.9 percent in the previous three days. The dollar strengthened 0.5 percent to 119.03 yen.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.2 percent to 1,144.78 after touching 1,149.14, which would be the highest close in data going back to 2005.

Swiss Intervention

Switzerland’s franc was little changed versus the shared currency as central bank data showed foreign-currency reserves rose to a record in December, signaling that the institution resumed intervention in the market to stem currency gains and reinforce its three-year-old minimum exchange rate of 1.20 per euro. The franc was at 1.20098 per euro.

The Nigerian naira fell for a third day, erasing earlier gains, after the governor of the central bank said the nation will never introduce capital controls and is reviewing a rule introduced last month that investors said crushed liquidity in the foreign-exchange market. The currency dropped 1.6 percent to 186.70 per dollar after strengthening as much as 1 percent.

The peso of Mexico rose 1.2 percent, while that of Colombia added 0.8 percent. The Czech koruna paced losers, declining 1.1 percent.

Fed Minutes

The dollar gained as the Fed minutes indicated broad support on the committee for Chair Janet Yellen’s assessment of the likely timing of an interest-rate increase she delivered at a press conference following the Dec. 16-17 meeting, calling for “patience” as the Fed weighs raising rates for the first time since 2006. Officials also addressed the strong dollar, which gained 14 percent last year against the yen and euro.

“Although the projected path of the dollar was revised up, the staff revised down its estimate of how much the appreciation of the dollar since last summer would restrain projected growth in real GDP,” according to the minutes.

“They speak of robustness, they talk about strength, they talk about labor markets continuing to improve,” said Roger Bayston, senior vice president and director of fixed income at the Franklin Templeton fixed-income group in San Mateo, California. “It probably means that the language that they’ve put in place about Fed rate hikes beginning to take shape toward the middle of the year probably should be consistent at this point.”

The greenback climbed earlier after figures from the Roseland, New Jersey-based ADP Research Institute showed companies in the U.S. added 241,000 workers in December, ore than the 220,000 gain forecast in Bloomberg survey.

‘Outright Deflation’

The euro fell as consumer prices in the currency bloc dropped 0.2 percent in December, the European Union’s statistics office in Luxembourg said today. That’s the lowest rate since September 2009. Economists in a Bloomberg survey predicted a decline of 0.1 percent. Unemployment held at 11.5 percent in November, Eurostat said in a separate report.

With officials in Frankfurt working on a plan to buy government bonds, the currency has also been weakened by renewed political turmoil in Greece. The country is set for elections this month that may bring into power a party opposed to austerity measures that are a condition of the nation’s financial bailout.

A slide in Greek bonds today sent the 10-year yield above 10 percent for the first time since September 2013.

“We can reach $ 1.15 this quarter,” Jens Nordvig, managing director of currency research at Nomura Holdings Inc., said of the euro in a phone interview. Of the ECB, he said “given the macro backdrop they’re facing — the very low inflation that continues to come out, outright deflation even — it’ll reduce their credibility if they don’t act very soon.”

The common currency has weakened 0.8 percent in the past month compared with a 3.3 percent gain for the dollar and a 5.6 percent jump by the yen among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

To contact the reporters on this story: Rachel Evans in New York at revans43@bloomberg.net; Lananh Nguyen in New York at lnguyen35@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Kenneth Pringle

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