The dollar fell, snapping three days of gains versus the euro, on prospects that Federal Reserve officials will signal further credit-easing measures to support economic growth. The U.S. currency weakened against 14 of its 16 major counterparts before the Fed releases today its Beige Book regional business survey that may show a slowing recovery in the world’s largest economy. The Australian dollar rose for the first time in four days as traders used its drop to the lowest level in two weeks to buy the currency amid speculation the nation’s central bank will raise interest rates. “The quantitative-easing story is clearly entrenched in the market,” said Jonathan Cavenagh, currency strategist at Westpac Banking Corp. in Sydney. “Positioning is still fairly stretched on the downside for the U.S. dollar.” The dollar declined to $1.3771 per euro at 6:40 a.m. in London from $1.3727 in New York yesterday. The U.S. currency fell to 81.38 yen from 81.58 yen, after reaching 80.88 on Oct. 15, the lowest level since April 1995. The euro was at 112.07 yen from 112.00 yen. The Australian dollar rose 0.7 percent to 97.53 U.S. cents from 96.86 cents yesterday, when it touched 96.62 cents, the least since Oct. 5. The so-called Aussie advanced to 79.36 yen from 79.03 yen. The U.S. economy will disappoint investors by expanding at a rate of 1.75 percent over the next year, said Ramin Toloui at Pacific Investment Management Co., which runs the world’s biggest bond fund. Last month, the Fed’s Beige Book found the economic rebound showed signs of slowing. ‘Cautious Conclusion’ “We’re still seeing a tentativeness in the financial sector to take risk” in the U.S., said Toloui, speaking from Pimco’s head office in Newport Beach, California. “The overall alignment of facts point toward a much more cautious conclusion about the trajectory of the U.S. economy.” Three Fed regional presidents including Charles Evans and Dennis Lockhart yesterday reinforced the idea that policy makers will begin a second round of unconventional monetary stimulus, with two saying asset purchases must be big enough to aid the economy. Richmond Fed President Jeffrey Lacker speaks today and St. Louis Fed President James Bullard speaks tomorrow. The yen was supported as China’s unexpected increase in borrowing costs stoked concern global economic growth will slow, underpinning demand for Japan’s currency as a refuge. China raised yesterday its benchmark lending and deposit rates after inflation accelerated to the fastest pace in 22 months. The one-year deposit rate will climb to 2.5 percent from 2.25 percent, the People’s Bank of China said on its website. ‘Heavy Toll’ “Fears that tighter Chinese monetary policy could dampen Chinese and global growth are taking a heavy toll on risk sentiment,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This is bolstering appetite for safe-haven currencies like the yen and the dollar.” China’s economy grew 9.5 percent in the third quarter from a year ago, down from a 10.3 percent expansion in the previous quarter, according to the median estimate of economists in a Bloomberg News survey before the government’s report tomorrow. The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. The MSCI Asia Pacific Index of regional shares fell 0.3 percent. The Standard & Poor’s 500 Index dropped 1.6 percent in New York yesterday. RBA Minutes The Australian dollar gained for the first time in five days versus the yen on prospects the nation’s central bank will resume interest-rate increases while other developed nations keep their rates at record lows. “The Aussie is vulnerable to these pushes lower, but it’s likely to be temporary in the absence of any further shocks to the market,” said Timothy Connors, head of foreign exchange at Custom House Global Foreign Exchange in Sydney. “Expectations are building for a rate rise in Australia in the coming three months.” Reserve Bank of Australia policy makers said yesterday that their decision to leave interest rates unchanged earlier this month was “finely balanced.” Benchmark rates would likely have to rise “at some point,” the bank said in minutes to its Oct. 5 policy meeting released yesterday. South Korea’s won rose for the first time in four days on speculation exporters took the opportunity to convert overseas earnings at a more favorable level after China’s rate increase drove the currency to a three-week low. “Exporters were seen repatriating income,” said Park Jae Sung, a currency trader at Woori Investment & Securities in Seoul. “Foreigners also started to sell the dollar again as we saw stocks rise.” The won appreciated 0.3 percent to 1,126.80 per dollar. It dropped as much as 1.1 percent earlier to 1,142.95, the lowest level since Sept. 29. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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