The dollar dropped from a two-week high versus the euro on concern the Federal Reserve’s regional business survey will show a slowing recovery, damping demand for the U.S. currency. The greenback slid against most of its major counterparts before the release of the Beige Book report as traders speculated that the central bank will increase purchases of government debt to support the economy. The dollar rose yesterday for a third day as China’s unexpected increase in borrowing costs discouraged risk demand. “We’re seeing the dollar give back some of its gains from the previous three sessions,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “The knee-jerk reaction from the China rate-hike story yesterday was a little bit overdone. Investors are a little weary to get overly long U.S. dollars ahead of the Federal Reserve meeting early next month.” The dollar depreciated 0.8 percent to $1.3841 per euro at 9:12 a.m. in New York, from $1.3727 yesterday, after touching $1.3698, the strongest level since Oct. 5. The U.S. currency fell 0.4 percent to 81.26 yen, from 81.58, after dropping to 80.88 on Oct. 15, the lowest level since April 1995. The euro gained 0.4 percent to 112.49 yen, from 112 yen. Sterling declined 0.6 percent to 87.96 pence per euro as Chancellor of the Exchequer George Osborne detailed the deepest budget cuts ever in Britain. The government is poised to eliminate 500,000 public-sector jobs and impose a levy on banks to extract the “maximum sustainable” revenue. BOE Minutes The pound slid earlier as the minutes of the Bank of England Monetary Policy Committee’s last meeting showed it voted 7-1-1 to keep the benchmark interest rate at 0.5 percent and the bond-purchase plan at 200 billion pounds ($315 billion). “Some of the members felt the likelihood that further monetary stimulus would become necessary in order to meet the inflation target in the medium term had increased in recent months,” the minutes said. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro, yen, pound and Canadian dollar, fell 0.7 percent to 77.632. The gauge of the greenback has dropped 9.7 percent since the end of June on speculation the Fed will increase asset purchases in a practice known as quantitative easing. Evans’s View Chicago Fed President Charles Evans said yesterday in Evanston, Illinois, that the central bank will need to buy securities on a large scale several times to carry out his preferred strategy of aiming to raise inflation temporarily. The Beige Book is due to be released at 2 p.m. New York time. 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. The median estimate of analyst forecasts compiled by Bloomberg is for a 2.7 percent expansion this year and growth of 2.4 percent in 2011. “The overall alignment of facts point toward a much more cautious conclusion about the trajectory of the U.S. economy,” said Toloui, speaking from Pimco’s headquarters in Newport Beach, California. The euro got a boost versus the dollar as the European Central Bank Executive Board member Juergen Stark said in an interview with Germany’s Die Welt newspaper that the central bank shouldn’t buy government bonds in markets that are functioning and that too loose a monetary policy can reduce the incentive for governments to implement fiscal consolidation. ECB Versus Fed The “contrast between the ECB and the Fed will keep the pressure on the dollar into year-end,” said Bilal Hafeez, global head of foreign-exchange strategy at Deutsche Bank AG, in an interview with Maryam Nemazee on Bloomberg Television’s “Countdown” program. The dollar may depreciate to $1.50 per euro in the next three to six months, he said. 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 on speculation the nation’s central bank will raise interest rates. The Aussie rose 1 percent to 97.79 U.S. cents, from 96.86 cents yesterday, when it touched 96.62 cents, the least since Oct. 5. It advanced 0.5 percent to 79.42 yen. An increase by China of its lending and deposit rates and comments from U.S. Treasury Secretary Timothy F. Geithner on Oct. 18 showing a commitment to a strong dollar may indicate the nations have reached a currency accord, according to Bank of New York Mellon Corp. “The timing of this week’s comments and policy shifts at least allows the possibility that some agreement has been reached,” Simon Derrick, chief foreign-exchange strategist in London, said today via e-mail. “If some kind of accord has been reached then this would be hugely significant, signaling trend reversals in a wide range of markets.” To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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