Dollar Weakens as Inflation Data Back Fed Stance; Krone Advances
2012-03-16 13:24:00.456 GMT
By Allison Bennett
March 16 (Bloomberg) -- The dollar weakened against most of its major peers after U.S. inflation data fueled speculation Federal Reserve policy makers will maintain economic stimulus.
The U.S. currency fell against the 17-nation euro as a gauge of consumer prices excluding food and energy rose less than forecast. Norway’s krone advanced with crude. Norway’s krone advanced with crude oil even as the central bank warned the currency may weaken. The yen headed for its sixth weekly drop against the dollar, as signs of U.S. growth and the prospects for further stimulus by the Bank of Japan sapped demand for the Asian currency.
“The Fed didn’t do anything this week to push people off the fence one way or another,” said Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut. “If we’d had a surprise to the upside, people would have felt more convicted in paring back easing expectations and then it comes in a little soft on core CPI and people may worry they’ve gotten ahead of themselves.”
The dollar fell 0.3 percent to $1.3124 per euro at 9:22 a.m. New York time. The U.S. currency gained 0.1 percent to
83.69 yen, adding to a 1.5 percent weekly increase of 1.5 percent.
The consumer-price index climbed 0.4 percent, matching the median forecast of economists surveyed by Bloomberg News, after increasing 0.2 percent the prior month, the Labor Department reported today in Washington.
The core measure, which excludes more volatile food and energy costs, climbed 0.1 percent, less than projected.
“This confirms the Fed’s view that inflation remains subdued and may alter investor’s perceptions about the possibility of further accommodation from the Fed in the next few months,” said Andrew Cox, a currency strategist at Citigroup Inc. in New York. “The month-over-month CPI print was enough of a miss to shake out some of the short-term dollar longs in the market.” A long position is a bet that an asset will increase in value.
The Fed left unchanged March 13 its statement that economic conditions would probably warrant “exceptionally low” interest rates at least through late 2014. It has held its target rate to a range of zero to 0.25 percent since December 2008.
Inflation “has been subdued in recent months although prices of crude oil and gasoline have increased lately,” the Fed said. The increase in oil will “push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.”
The yen has dropped 5.7 percent in the past month, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. It is also the worst performer so far this year, with an 11 percent decline. The dollar has climbed 0.7 percent since a month ago and the euro advanced 0.6 percent.
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