A gauge of the dollar was 0.1 percent from a five-year high amid speculation the Federal Reserve will raise interest rates next year after removing a pledge to keep them low for a “considerable time.”

The U.S. currency matched the strongest in a week against the euro after strengthening yesterday when Fed Chair Janet Yellen said rates would probably be increased gradually once economic parameters were met. South Korea’s won slid against all its major counterparts after the yen weakened yesterday. Australia’s dollar rallied from a four-year low as a gain in Asian stocks spurred demand for higher-yielding assets. A gauge of currency volatility climbed to the highest in 15 months.

“The Fed statement signals policy makers are shifting to a more hawkish stance, while also expressing caution about the economy,” said Junichi Ishikawa, an analyst at IG Markets in Tokyo. The dollar “is benefiting from an ideal mix of stock gains and a gradual rise in U.S. yields.”

The Bloomberg Dollar Spot Index was little changed at 1,120.85 at 2:26 p.m. in Tokyo after gaining 0.9 percent yesterday. The gauge, which tracks the currency against 10 major peers, closed at 1,122.34 on Dec. 5, the highest level since March 2009.

The dollar dropped 0.2 percent to 118.39 yen after surging 1.9 percent yesterday, the biggest advance since Oct. 31. The U.S. currency was unchanged at $1.2342 per euro after appreciating to $1.2321, matching the strongest since Dec. 9. The yen gained 0.2 percent to 146.13 per euro.

‘Dollar Bullishness’

Yellen said the shift in guidance meant “the committee considers it unlikely to begin the normalization process for at least the next couple of meetings.” The next scheduled policy decisions are Jan. 28, March 18 and April 29.

Yellen’s comments “support our long-held and unabashed U.S. dollar bullishness,” Raiko Shareef, a markets analyst at Bank of New Zealand Ltd. in Wellington, wrote today in a note to clients.

The dollar has surged 13 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 1.3 percent, while the yen tumbled 4.6 percent.

The won headed for its biggest two-day loss in a month after the yen slumped yesterday following the Fed announcement. Korea’s currency tends to track the yen as companies from both countries compete in export markets.

‘Clearer Stance’

“The Federal Reserve seems to have adopted a clearer stance on the timing of raising interest rates,” said Lee Hyun Kyung, a Seoul-based currency trader at Busan Bank. “The won will be affected by the rise in the dollar-yen rate.”

The won dropped 0.6 percent to 1,101.49 per dollar, taking its two-day decline to 1.4 percent, the most since the period ended Nov. 20.

Australia’s dollar rose against all except two its 16 major peers as the MSCI Asia Pacific Index of stocks advanced 0.8 percent, following gains in U.S. shares yesterday.

“The Aussie is slightly higher having seen a good night in the equities market extending to Asia hours,” said Derek Mumford, director at Rochford Capital, a currency risk-management company in Sydney. “I still think it’s a temporary relief in the Aussie and I’d be looking to sell into rallies.” The currency will probably decline to 80 U.S. cents during the next couple months, he said.

The Aussie rose 0.1 percent to 81.33 U.S. cents after earlier falling to 81.07 cents yesterday, the weakest level since June 2010.

Volatility Climbs

JPMorgan Chase & Co.’s Global FX Volatility Index climbed to 10.06 percent yesterday, the highest level since September 2013. It was little changed today at 9.93 percent.

The ruble halted its decline yesterday as Russia’s central bank announced a range of measures designed to stabilize the financial system, a day after it unexpectedly increased the key interest rate to 17 percent from 10.5 percent.

Russia’s currency appreciated 12 percent to 60.2205 per dollar after depreciating to a record 80.10 on Dec. 16. It has tumbled 46 percent this year, the biggest loss after Ukraine’s hryvnia among 174 currencies tracked by Bloomberg.

 

Source: Bloomberg – Dollar Gauge 0.1% From Five-Year High After Fed as Won Slides

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