Azernews.Az

By Bloomberg

If there’s one thing that’s clear this week in currency markets, it’s that the Federal Reserve is what’s foremost on traders’ minds.

The dollar is on track for a third weekly drop against the euro and a second week of declines versus the yen after Fed Chair Janet Yellen and her colleagues lowered longer-term projections for U.S. interest rates Wednesday. That’s even as Greece teeters toward default, and after Bank of Japan Governor Haruhiko Kuroda signaled he wasn’t seeking to halt the yen’s depreciation. A gauge of currency volatility has plunged to a one-month low.

“A lot of the bid on volatility was more to do with pre- Fed than it was about Greece,” said Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “Everyone’s obsessed with interest-rate differentials, but it’s effectively U.S. interest rates, full stop. The Fed is front and center.”

The dollar has depreciated 0.4 percent this week to $1.1316 per euro as of 9:23 a.m. London time. It has weakened 0.2 percent to 123.16 yen.

The BOJ voted to keep stimulus unchanged Friday, as forecast by every economist in a Bloomberg survey.

The outlook for swings in Group of Seven foreign-exchange rates as measured by a JPMorgan Chase & Co. gauge tumbled to 9.56 percent, from as high as 10.53 percent at the start of the week.

Fed Outlook

Fed officials maintained their forecasts for the benchmark interest rate to rise to 0.625 percent at the end of 2015, while lowering their expectations for next year and the year after.

The prospect that the Federal Open Market Committee will raise borrowing costs for the first time since 2006 has lifted Bloomberg’s Dollar Spot Index, which measures the currency against 10 major peers, more than 15 percent over the past 12 months.

In June, it has fallen about 2 percent.

“The focus on interest-rate differentials that has driven a stronger dollar is now paradoxically making further gains difficult as expectations for that first hike get pushed back,” said Shinji Kureda, Tokyo-based head of FX trading at Sumitomo Mitsui Banking Corp.

The dollar lost ground against the euro this week even as crunch talks between Greece and euro-area finance ministers Thursday ended in acrimony after only four hours, forcing leaders to call an emergency summit for Monday.

‘Under Pressure’

“You would have thought the euro would have been under pressure,” said Derek Mumford, director at Rochford Capital, a currency risk-management company in Sydney. “But there’s been disappointment about the FOMC statement and the potential path of U.S. rates. It looks like the pace of any future rate hikes will be very, very slow.”

The U.S. dollar has stayed weaker versus the yen, after Kuroda last week spurred the biggest rally in Japan’s currency this year by saying he didn’t expect it to weaken further on a real effective basis.

On Tuesday he tried to walk back those comments, saying they weren’t aimed at influencing the exchange rate, and he didn’t intend to say he’s not seeking a weaker yen.

“The best that the Japanese can hope for is a continuing weakening of the yen,” Steve Goldman, a fund manager at Kapstream Capital, told Bloomberg TV in Sydney. “What they really need is not to make the wrong comment about the yen being too weak.”