The Dollar Index advanced amid speculation the Federal Reserve may announce further stimulus measures for the world’s biggest economy following a two-day policy meeting. The yen approached its postwar record versus the dollar as concern the global economy is slowing encouraged purchases of safer assets. The pound weakened versus most of its major peers as traders awaited minutes from the central bank’s last policy meeting while Norway’s krone slid on bets the central bank will leave its main rate unchanged today. The Fed is expected to replace short-term Treasuries in its $1.65 trillion portfolio with longer-term bonds, according to a Bloomberg survey. “Unless they surprise the market by announcing an increase in the absolute size of their portfolio, the dollar could benefit” from the Fed’s actions, said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. The Dollar Index, which measures the greenback against the currencies of six major U.S. trading partners, rose 0.2 percent to 77.135 as of 9 a.m. in London, less than one percent below an almost seven-month high reached Sept. 12. The dollar was 0.2 percent stronger versus the euro at $1.3672. The yen rose 0.1 percent to 76.35 per dollar, after earlier reaching 76.12, the strongest since Aug. 19, when it reached a postwar record of 75.95. U.S. Stimulus Analysts are expecting the Fed to announce further monetary stimulus measures to lower the cost of long-term mortgages in a bid to spark a rebound in the U.S. housing market, seen as essential to restore the net worth of the nation’s consumers. “The dollar has been undermined by quantitative easing because it has caused a huge drop in short-term yields,” said Juckes. “This time round it could drive shorter-dated yields higher which at the margin is likely to be dollar positive.” The Fed, by announcing today the lengthening in the average duration of bonds in its portfolio, would mimic a policy in 1961 known as “Operation Twist” for its goal of bending the yield curve. Within the first month, the program may push down the yield on the 10-year Treasury security by 0.15 percentage point, said Chris Rupkey, chief financial economist of Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. The Swiss franc declined against the euro for a second day after yesterday’s talks between Greece, the European Union and International Monetary Fund curbed concern the Mediterranean nation will default. The currency also weakened following speculation yesterday that the Swiss National Bank may reset the 1.20 ceiling for the franc versus the euro that it imposed on Sept. 6. Franc Floor “The Swiss franc sold off on expectation that the SNB may move the euro-franc floor higher,” Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd. wrote in a note to clients today. The franc lost 0.5 percent to 1.2222 per euro after reaching 1.2327, the weakest since July 5. It fell 0.7 percent to 89.39 centimes per dollar, after touching 89.87 centimes, the weakest level since April 20. Swiss central bank spokesman Walter Meier in Zurich declined yesterday to comment when asked about speculation that policy makers may adjust the franc ceiling against the euro. The European Union said talks with Greek Finance Minister Evangelos Venizelos made “good progress” in a second round of talks with the EU and IMF aimed at staving off default. The statement said a “full mission” will return to Athens next week. ‘Torturous’ Negotiations Prime Minister George Papandreou’s government is trying to show it can reach budget targets required for the next 8 billion euro payment from a bailout engineered in 2010. “The fact that the negotiations are ongoing and, torturous though they may be, they probably will get their 8 billion to keep them funded in October,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “That’s making it difficult for euro to move sharply lower near term.” Callow advised that investors sell the currency if it gains above $1.38. The euro has depreciated 1.9 percent in the past month, the worst performer after the Swiss franc’s 10.2 percent drop, among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has risen 3.7 percent and the yen advanced 4 percent. The IMF said yesterday the world economy will expand 4 percent this year and next, compared with June forecasts of 4.3 percent in 2011 and of 4.5 percent in 2012. ‘Old Safe-Haven’ The IMF predicts growth of 6.4 percent in developing economies this year and 6.1 percent next year, down from 6.6 percent and 6.4 percent forecast in June. Richer nations will grow 1.6 percent this year instead of the 2.2 percent expected in June, and 1.9 percent next year instead of 2.6 percent, the IMF said. The yen rose to as high as 76.12 per dollar after breaking through so-called resistance near 76.35, according to Junichi Ishikawa, a Tokyo-based market analyst at IG Markets Securities Ltd. The yen later pared gains on concern the Bank of Japan will sell the currency, he said. “In this environment where the global economy is turning down and the Japanese data are not that weak, it’s very likely that the yen will strengthen,” said Thomas Harr, head of Asian currency strategy at Standard Chartered Plc in Singapore. “If the Bank of Japan does not intervene, it’s the old safe-haven currency.” Japanese Finance Minister Jun Azumi told reporters in Tokyo today he’s closely watching markets and will take “bold” action on currencies if needed. BOE Minutes The pound traded near an eight-month low against the dollar before minutes of the Bank of England’s last policy meeting reveal whether any other officials joined Adam Posen in calling for additional bond purchases. The central bank kept its key rate at a record low of 0.5 percent in September and maintained bond purchases at 200 billion pounds ($314 billion). The pound fell 0.3 percent to $1.5694, near the $1.5633 level reached on Sept. 19, which was the lowest level since Jan. 12. It was lost 0.1 percent to 87.14 pence per euro, snapping a three-day advance. Norway’s krone weakened versus 13 of its 16 major peers on bets the central bank will keep its benchmark interest rate unchanged at 2.25 percent for a third consecutive meeting. The krone lost 0.6 percent to 5.6607 per dollar. To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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