BLBG: Dollar Declines Against Higher-Yielding Counterparts on Fed-Purchase Bets
The dollar fell against higher- yielding currencies amid speculation the Federal Reserve will restart purchases of bonds today to spur the economy, increasing the supply of the U.S. currency in circulation.
The dollar rose from near a 15-year low against the yen and erased a loss versus the euro as a private-sector report showed U.S. companies boosted payrolls more than forecast last month. It dropped against emerging-market currencies including South Korea’s won and Brazil’s real as gains in stocks gave investors the confidence to buy higher-yielding assets. The Fed may pledge to buy $500 billion or more in securities, according to 29 of 56 economists surveyed by Bloomberg News.
“All eyes are on the Fed today, and that’s probably going to be the main driver,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “If they surprise on the dovish side, that could add extra fuel” to the dollar weakness, he said.
The dollar was little changed at $1.4027 per euro at 8:33 a.m. in New York, from $1.4034 yesterday, when it depreciated to $1.4058, the weakest level since Oct. 25. It rose 0.3 percent to 80.88 yen, from 80.63 yesterday. It reached 80.22 on Nov. 1, the weakest level since April 1995. The yen traded at 113.46 per euro, from 113.15 yesterday.
The greenback erased an earlier loss versus the euro after ADP Employer Services reported employment increased by 43,000 in October. The median estimate of 38 economists surveyed by Bloomberg News called for a 20,000 gain.
‘Picking Up Pace’
“We’ve seen a score of upside U.S. surprises, confirming a much bigger global story that the recovery is picking up pace into the end of the year, much to the surprise of a lot of people,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “Everything pre-QE is going to be relatively contained, and then this afternoon we’ll see where it goes.”
The MSCI World Index of shares rose for a fifth day, gaining 0.2 percent. U.S. stock-index futures rose.
Benchmark interest rates are 2.25 percent in South Korea and 10.75 percent in Brazil, compared with as low as zero in the U.S. and Japan, making the nations’ higher-yielding assets attractive to investors.
The dollar dropped for a third day against the won, depreciating 0.3 percent to 1,110.28. Against the real, the greenback declined 0.8 percent to 1.6898. South Korea’s currency rose 0.4 percent to 13.7357 against the yen.
Fed Efforts
The Fed has kept U.S. interest rates near zero since December 2008 and used asset purchases to try to stimulate growth following the worst recession since the Depression. New asset purchases to stoke the recovery and boost prices would follow Fed acquisitions of $1.7 trillion in Treasuries and mortgage debt that ended in March.
The Washington-based central bank’s preferred price measure, which excludes food and fuel, rose 1.2 percent in September from a year earlier, the smallest gain since September 2001. Most Fed officials’ long-term preferred range for the inflation rate is about 1.7 percent to 2 percent.
The pound gained versus the dollar and the euro after a report showed U.K. services growth unexpectedly accelerated in October. The pound rose 0.6 percent to $1.6139 and appreciated to 87 pence per euro, from 87.48 pence yesterday.
The services gauge rose to 53.2 from 52.8 in September, Markit Economics and the Chartered Institute of Purchasing and Supply said today. Economists forecast a decline to 52.6, according to the median of 25 estimates in a Bloomberg News survey. A reading above 50 indicates growth.
Australian Dollar
The Australian dollar retreated from near parity with its U.S. counterpart as the country’s Bureau of Statistics said home-building approvals fell 6.6 percent in September from a month earlier, compared with the median economist forecast for no change in a Bloomberg News survey.
Australia’s currency bought 99.95 U.S. cents, unchanged from yesterday, when it traded at $1.0024, the highest level since exchange controls ended in 1983. It was at 80.77 yen, from 80.57 yen yesterday.
Losses by the dollar were limited after Republicans took control of the U.S. House and narrowed the Democratic majority in the Senate in midterm elections, fueling speculation they will advance policies favorable to businesses. Republicans gained at least 60 seats in the House yesterday and six in the Senate.
The U.S. currency may also find support if more than one policy maker objects to printing new money, according to RBC Capital Markets.
“More than one dissenter would be supportive of the dollar,” Sue Trinh, a senior currency strategist in Hong Kong, wrote in a research note today. Investors should also study the details of the decision, because a suggestion there will be incremental increases that are “data dependent” may also boost the U.S. currency, Trinh said.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
