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Dollar rises most since May as taper fuels emerging markets rout

February 2, 2014

The dollar had its biggest monthly gain against a basket of peers since May as a global selloff of emerging-market currencies prompted investors to seek the relative safety of haven assets. The yen gained versus the dollar for the first time in six months as the global rout spurred investors to reverse carry trades. The Argentine peso and Hungary's forint were January's two biggest emerging-market losers. The greenback climbed versus all 31 major peers except the yen as the Federal Reserve scaled back monthly bond purchases a second time, citing labor-market improvements. US payrolls gains more than doubled last month, according to a Bloomberg survey before next week's report. "The dollar has benefited from the broad-based flight out of risk assets and into safer ones," Omer Esiner , chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc , said on Friday in a phone interview. "That we didn't really get even an acknowledgment of the selloff in emerging markets by the Fed shows that it sees little risk of contagion at this point, which is also dollar- positive." The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, climbed 1.2 per cent in January to 1,031.57 in New York . The dollar appreciated 1.9 per cent to $1.3486 per euro and touched $1.3479 on Friday, its strongest level since November 22 . The US currency dropped 3.1 per cent to 102.04 yen , the biggest slump since April 2012 . The Japanese currency rose 5.2 per cent to 137.63 per euro. The MSCI All-Country World Index tumbled 4.1 per cent in January and the Standard & Poor's 500 Index slid 3.6 per cent. Benchmark US 10-year Treasury notes rose, pushing yields down 38 basis points, or 0.38 percentage point, to 2.64 per cent, the lowest closing level since November 7 . Emerging-market currencies continued a slump initially spurred by anti-government protests from Ukraine to Thailand and deepened by the January 23 devaluation of Argentina's peso, which dented confidence throughout Latin America . The peso fell 13 per cent that day and 19 per cent for the month. A custom Bloomberg index with equal weightings of the dollar's 20 most-traded emerging-market peers has declined in 14 of the past 15 days and slipped three per cent last month. The Hungarian forint led all emerging-market decliners this week as Gyula Pleschinger, a member of the central bank's Monetary Council , said on January 29 that the currency has depreciated "too fast, too big" and that the central bank is monitoring its move and the market environment. The currency slipped 3.8 per cent this week, pushing its monthly drop to 6.6 per cent. Poland zloty was the second-biggest decliner this week, falling 2.7 per cent to extend its monthly decline to 4.1 per cent. Russia's ruble posted gains on just four days last month as it sunk 6.5 per cent. The Turkish lira rose this week versus all of its 174 global peers except the Malawian kwacha, gaining 3.6 per cent against the greenback, after its central bank more than doubled interest rates. Still, it plummeted 4.8 per cent on the month. The Fed announced on January 29 that it will trim its monthly bond buying by $10 billion to $65 billion , sticking to its plan for a gradual withdrawal from departing Chairman Ben S. Bernanke's unprecedented easing policy.

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Source: Khaleej Times (United Arab Emirates)

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