BS: Dollar Nears 15-Year Low Versus Yen Before Bernanke’s Speech
Oct. 15 (Bloomberg) -- The dollar traded near its weakest level in 15 years against the yen before a speech by Federal Reserve Chairman Ben S. Bernanke that may indicate whether the central bank will ease monetary policy further.
The yen advanced against all of its 16 most-actively traded peers as declines in stocks around the world and a U.S. probe into home foreclosures boosted demand for the Japanese currency as a refuge. The dollar was close to its weakest level against the euro since January. Minutes of last month’s Federal Open Market Committee meeting released this week suggested the Fed may pump more cash into the economy.
“Focus is clearly on Bernanke’s speech, which will be closely scrutinized for clues about the tools and size of quantitative easing,” said Stephan Maier, a foreign-exchange strategist at UniCredit SpA in Milan. “Expectations of further monetary easing have intensified since the release of the Fed minutes.”
The dollar weakened 0.4 percent to 81.19 yen at 9:46 a.m. in London from 81.48 yesterday, when it touched 80.89, the lowest since April 1995. The Japanese currency was set for its fourth straight weekly gain against the dollar.
The U.S. currency was little changed at $1.4104 per euro from $1.4084 in New York yesterday after strengthening earlier to $1.4009. It reached $1.4122 yesterday, the weakest since Jan. 26. The 16-nation single currency headed for its longest weekly winning streak since December 2008 against the dollar. The euro weakened 0.2 percent to 114.49 yen from 114.76 yen.
Bernanke will speak later today at the Boston Fed conference.
Asian Stocks Fall
The U.S. currency had been boosted by remarks from Federal Reserve Bank of Minneapolis President Narayana Kocherlakota, who said late yesterday that additional asset purchases by the central bank may have a “more muted effect” than anticipated.
Japanese Prime Minister Naoto Kan said today in parliament he is “very concerned” about the yen’s rise to a 15-year high. Kan last month authorized Japan’s first currency intervention since 2004.
The Japanese currency gained after the MSCI Asia Pacific Index fell 0.6 percent.
U.S. stocks declined yesterday, dragging benchmark indexes down from five-month highs, as financial companies slumped on concern a regulatory probe into mortgage practices will harm their earnings. Top legal officers from all 50 U.S. states this week opened a joint investigation into home foreclosures, saying they will seek an immediate halt to any improper practices.
Dollar Index
The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies including the euro, yen and Swiss franc, fell 0.2 percent to 76.487. It has dropped 4.9 percent since Sept. 21, when the Fed said in a statement following its policy meeting that it’s prepared “to provide additional accommodation if needed” to support the recovery.
“Financial markets are functioning much better in late 2010 than they were in early 2009,” Kocherlakota said yesterday. As a result, “the relevant spreads are lower and I suspect it will be somewhat more challenging for the Fed to impact them.”
A former top Japanese currency official said today gains in the yen may be “coming to an end” as investors have priced in another round of monetary easing by the Fed.
“There’s no fundamental reason for the yen to strengthen,” said Makoto Utsumi, who led currency policy from 1989 to 1991 and conducted currency intervention after the signing the Plaza Accord in 1985. “The more the yen strengthens, the bigger the reversal could be.”
‘Reflect Fundamentals’
The euro slipped from near an eight-month high versus the dollar after European Central Bank Governing Council member Christian Noyer said yesterday that global authorities need to find a joint solution to prevent disorderly currency moves.
European Union Monetary Affairs Commissioner Olli Rehn said “exchange rates should reflect economic fundamentals,” in an e-mailed copy of a speech given in Helsinki yesterday. EU President Herman Van Rompuy speaks later today in Brussels.
“European officials seem worried over the euro’s rapid appreciation,” said Yoh Nihei, a Tokyo-based trading group manager at Tokai Tokyo Securities Co. “Its recent gains are probably too fast, and it could hurt exports. There’s a downside risk for the euro.”
The dollar still headed for a fifth weekly decline versus the euro on speculation the U.S. economic recovery is faltering, adding to traders’ bets the Fed will ease policy to support growth and spur price gains.
Fed ‘Elephant’
Consumer prices rose 0.2 percent in September after a 0.3 percent gain the prior month, according to the median forecast of economists surveyed by Bloomberg News before today’s report. Prices excluding food and energy increased in September for a sixth month at an annual rate of 0.9 percent, matching the slowest year-over-year rate of gains since 1966, the Labor Department is forecast to say.
“The Fed is the elephant in the room,” said Rebecca Patterson, global head of foreign exchange at the private banking unit of JPMorgan Chase & Co., in a Bloomberg Television interview. “The consensus is building that we are going to get more quantitative easing from the Fed. Right now a weaker dollar is definitely in America’s interest.”
Interest-rate futures contracts on the Chicago Board of Trade showed a 34 percent chance Fed policy makers would cut the target lending rate to zero by year-end. The probability was 26 percent a month ago. The key U.S. rate has been at a range of zero to 0.25 percent since December 2008.
--Editors: Keith Campbell, Paul Armstrong.
To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
