MW: Dollar slides 1% versus euro as Fed hints at further action
Euro bolstered as Portugal sells €750 million in bonds
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar extended losses against the euro and other major currencies on Wednesday, a day after the Federal Reserve said it was ready to take further action to boost the U.S. economy and fend off any deflationary threats.
The dollar index (DXY 79.74, -0.70, -0.87%) , a measure of the greenback against a basket of six major currencies, fell to 79.668, compared with 80.452 late Tuesday.
The euro (EURUSD 1.3406, +0.0151, +1.1392%) rose to $1.3419 recently, from $1.3242 in late North American trading on Tuesday. It hasn’t topped $1.34 intraday since April.
The catalyst for such pressure is the threat of additional quantitative easing undertaken by the U.S. central bank, said Neil Mellor, currency strategist at Bank of New York Mellon.
Although the Fed’s policy-setting Open Market Committee “is certainly not making a move to deliberately weaken the dollar (and it is worth reiterating that dollar policy remains the remit of the Treasury, not the Fed), it is reasonable to suppose that the dollar will come under renewed downward pressure,” he said a research note.
Moreover, since the move comes in an environment where all major foreign-exchange players are facing “overt criticism” over currency policy, “it also seems reasonable to say that officials in Japan, China and, arguably, even Europe will see it as evidence that the U.S. is reverting to a policy of benign neglect toward the greenback,” he said.
Investors also shifted to gold (GCZ10 1,291, +16.60, +1.30%) , which was approaching $1,300 an ounce, instead of the declining U.S. dollar. Read more on gold futures.
The FOMC on Tuesday said inflation is currently running below its target and sounded more glum on its outlook for growth in the largest global economy, effectively laying the groundwork for further asset purchases, or another leg of so-called quantitative easing. Read story on Fed decision.
The euro extended gains after Portugal auctioned 750 million euros ($997.1 million) in bonds. The amount was at the bottom end of the range of €750 million to €1 billion available. Portugal’s borrowing costs rose, reflecting recent pressure on some peripheral euro-zone government bonds, but demand was solid. Read more on Portugal’s bond sale.
Japan, U.K.
Against the Japanese yen, the dollar (USDYEN 84.4300, -0.6900, -0.8106%) fell to ¥84.55, down from ¥85.07 Tuesday.
