NEW YORK (MarketWatch) — The dollar rose against most rivals on Tuesday as investors awaited the next day's release of minutes from the Federal Reserve's December meeting.
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November trade deficit less than expected Sital Patel takes a look at the markets, including three stocks to watch today. Photo: Getty Images.
The European Central Bank and the Bank of England will release monetary-policy decisions on Thursday and investors are also watching for December's jobs report on Friday.
The events later in the week left the foreign-exchange market without much news to digest on Tuesday, said Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets in London. "We're seeing the majors kind of thrashing around without an awful amount of conviction or direction," he said.
The ICE dollar index (DXY) , a gauge of the U.S. unit against a trade-weighted basket of six other currencies, rose to 80.864 from 80.664 late Monday. That's the highest level since Dec. 2's 80.925, according to FactSet data.
The WSJ Dollar Index (XX:BUXX) , an alternate measure of the greenback's strength, gained to 74.13 from 73.97.
Eric Rosengren, president of the Boston Federal Reserve, said Tuesday the central bank should reduce its bond purchases very gradually, adding later that a $10 billion reduction per meeting would fit that approach. Separately, San Francisco Fed President John Williams said the central bank's bond purchases could be ended this year.
The Fed in December decided to begin reducing monetary stimulus, announcing it would cut bond purchases to $75 billion in January. The Fed's bond purchases have been understood to weigh on the dollar. Rosengren was the only member of the Fed's policy-setting committee to vote against cutting bond purchases last month
The U.S. trade deficit fell nearly 13% in November to $34.3 billion from a revised $39.3 billion in October, according to Commerce Department data released Tuesday.
BK Asset Management managing director Kathy Lien said the Fed minutes have the potential to be a bigger market-moving event than Friday's U.S. jobs report. "If the [Fed] minutes show that there was an overwhelming amount of support for tapering before the end of 2013, their enthusiasm will revive the rally in the dollar and drive [the dollar's rate against the yen] back above ¥105," she said in a note.
"However, if there was significant reluctance, and policy makers expressed hesitancy about staying on a predetermined track with bond purchases, then the dollar could come under additional pressure," said Lien.
The dollar (USDJPY) rose to ¥104.56 from ¥104.17 late Monday.
The euro (EURUSD) inched down to $1.3613 from $1.3631 late Monday.
The annual rate of inflation across the euro zone fell further below the European Central Bank's target in December, which may trigger fears that too little inflation, rather than too much, will pose a threat to the region's recovery. It also puts some pressure on European Central Bank President Mario Draghi and his colleagues to act further to tackle deflation, said analysts.
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"If inflation keeps edging lower, the likelihood of another cut to the refi rate or even negative deposit rates seem to be more pronounced than before," said Ishaq Siddiqi, market strategist at ETX Capital. "The Fed may be bowing out of the stimulus game, but the ECB is in for a tough grind to repair the euro zone and prevent an economic crisis from taking hold again."
German jobless claims in December unexpectedly fell 15,000 from November on a seasonally-adjusted basis, while the jobless rate remained unchanged at 6.9%, which is near a record low.
Data released Monday from Markit indicated strengthening in Spain and helped raise a gauge of the euro zone's services sector and the broader private sector in December, although ongoing weakness in French business activity curbed the advance.
The Australian dollar (AUDUSD) moved lower to 89.25 U.S. cents from 89.65 U.S. cents. Earlier Tuesday, data showed Australia's trade deficit narrowed on a seasonally adjusted basis in November.
The British pound (GBPUSD) was little changed at $1.6396 from $1.6400 late in the previous session.
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