Dollar will end 2015 with a whimper
The dollar looks set to end 2015 with a whimper, weakening against most major peers this month and trimming its advance for the year.
The Bloomberg Dollar Spot Index is poised for its worst month since June as traders estimate the probability of the Federal Reserve raising interest rates in the first quarter at less than 50 percent. Economists predict a report Wednesday will show the Fed's preferred inflation measure accelerated in November. Sweden's krona and New Zealand's dollar are the biggest gainers among Group of 10 peers since the Fed increased its benchmark last week, while the British pound and Canadian dollar are the worst.
"There's some paring of outstanding dollar long positions with investors reluctant to carry dollar exposure into the holidays," said Ray Attrill, co-head of currency strategy at National Australia Bank Ltd. in Sydney. "If you want to be at least modestly constructive on the U.S. dollar early next year, which we are at this stage, you're probably going to need to see the market attaching a higher probability" to the Fed raising rates in the first quarter, he said.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, has fallen 0.5 percent this month as of 12:05 p.m. in Singapore, trimming this year's advance to 8.9 percent. The gauge was little changed Wednesday as the dollar rose 0.1 percent to $1.0946 per euro and fell less than 0.1 percent to 121.02 yen.
Japanese financial markets are shut Wednesday for a public holiday.
The krona has appreciated 0.9 percent against the dollar and the kiwi advanced 0.7 percent since the day before the Fed raised its benchmark on Dec. 16. The pound weakened 1.4 percent and Canada's currency slipped 1.3 percent.
Sterling has dropped amid speculation the Bank of England will delay following the U.S. central bank in raising rates as economic growth slows.
Analysts predict a report Wednesday will confirm U.K. gross domestic product expanded at an annual pace of 2.3 percent last quarter, down from 2.4 percent in the previous period, and as much as 3.1 percent in the three months through June last year.
"The final read of third quarter GDP is unlikely to show anything new but markets are relatively sensitive to negative surprises from the U.K.," Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland, wrote in a research report.
The pound was little changed on Wednesday at $1.4833 after falling to $1.4806 on Tuesday, the weakest since April 15.
There's a 48 percent chance the Fed will increase its benchmark by its March 15-16 meeting and a 53 percent probability by its April 26-27 gathering, according to data compiled by Bloomberg based on futures. The central bank last week increased its target to a range from 0.25 percent to 0.5 percent.
U.S. personal spending increased in November by the most in three months, according to Commerce Department report released Tuesday, a day earlier than scheduled. The Fed's preferred gauge of inflation rose at an annual rate of 0.4 percent last month from 0.2 percent in October, a Bloomberg survey forecast before the number is published on Wednesday.
Hedge funds and other large speculators reduced positions betting the dollar will gain versus eight peers in each of the last three weekly reports from the Commodity Futures Trading Commission. Long dollar positions fell to 322,224 on Dec. 16 from 428,298 on Nov. 24.