Yen rising back toward level at which Japan recently intervened By William L. Watts and Deborah Levine, MarketWatch NEW YORK (MarketWatch) — The dollar fell to its lowest level in more than seven months Wednesday, as growing expectations that the Federal Reserve will further ease monetary policy outweighed simmering problems in Ireland and other European countries. Three Federal Reserve members have speeches planned for the day, and traders will be listening for any hints on their disposition to engage in a new bond-purchase program to help the U.S. economy. The dollar index (DXY 78.86, -0.16, -0.20%) , a measure of the greenback against a basket of six major currencies, recently stood at 78.872, down from 78.956 late Tuesday. Earlier, it pushed as low as 78.616, according to FactSet Research. That was the lowest point for the index since early February. Quantitative easing, also known as QE, effectively creates new money to purchase government bonds or other assets. It tends to devalue a country’s currency. “The argument about further quantitative easing in the U.S. now seems to be less about whether the Fed will act, but how,” said Steve Barrow, currency strategist at Standard Bank. Since this would be the Fed’s second such program, it’s been dubbed QE2 in financial markets. “The fear of what potential QE2 will do to the dollar outweighs the negative effect to the euro” from sovereign credit risks, said Andrew Brenner, head of emerging markets at Guggenheim Securities. On Wednesday, Minneapolis Fed President Narayana Kocherlakota said a new round of Fed-engineered purchases of bonds would have little impact on markets or the economy. For one thing, if banks aren’t lending the excess reserves that previous QE programs have created for them, he implied it’s unlikely more cash would have the effect of spurring loans. Read more on Fed’s Kocherlakota. The dollar index has fallen in the last three sessions, declining on Tuesday after a drop in U.S. consumers’ confidence supported speculation that the Fed would resume a larger-scale purchase of U.S. bonds. Read about dollar, euro on Tuesday. Much euro upside? The euro (EURUSD 1.3594, +0.0017, +0.1252%) rose to $1.3593, up from $1.3581 in late North American trading on Tuesday. The single currency traded as high as $1.3637, its strongest level versus the dollar since mid-April. Reports that Ireland would announce a new bailout plan for Anglo Irish Bank did little to blunt the euro’s move higher. See more on Anglo Irish Bank. Upside for the euro, however, may be limited amid ongoing worries about debt woes and other difficulties in the euro zone. Trade unions in Spain and elsewhere in Europe called strikes Wednesday to protest austerity measures. Also aiding the euro, the European Commission’s indicator of economic sentiment for September showed an unexpected rise. Read about the ESI. Whither the yen The dollar also fell versus Japan’s yen (USDYEN 83.6300, -0.2100, -0.2505%) to ¥83.75 after having hit an intraday high of ¥84.06. The greenback changed hands at ¥83.92 late Tuesday. “Concerns remain about further easing by the Bank of Japan, but that is unlikely to happen before next week’s monthly meeting which leaves intervention as the only probable alternative between now and then,” said Michael Hewson, analyst at CMC Markets. On Wednesday, the Bank of Japan’s quarterly survey of business sentiment showed a better-than-expected improvement in a key index, although it also offered a subdued outlook. Read more on Tankan survey. Traders are still cognizant about whether or at what levels Japanese officials may intervene in currency markets again, as they did recently when the dollar fell under ¥83. The greenback has now given up roughly two-thirds of the intervention gain, according to Brown Brothers Harriman.

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